When you purchase car insurance, an insurer will base your premiums on several factors, including your car’s value. If you file a claim, the vehicle’s value can influence the amount you receive. 

Mileage can cause your car to depreciate, or lose value over time. Understanding how depreciation works can help you be sure that you have the right insurance coverage for your needs.

What Is Depreciation?

Depreciation is a decline in an asset’s value over time. A new car begins to lose value as soon as it’s sold and continues to drop in value for the first several years. After that, the rate of depreciation slows. 

A vehicle’s mileage is one factor that influences the rate of depreciation. A car with high mileage has seen a lot of wear and tear, and its actual cash value might be significantly lower than the amount it cost when it was new. 

How Can Depreciation Affect Auto Insurance?

A vehicle’s mileage can influence the amount you pay for insurance since premiums are based in part on a car’s value. A vehicle with a lot of miles will generally cost less to insure than one with fewer miles.

Mileage can also affect your payout if you file a claim. If you buy a new car, it will experience a quick, steep drop in value. If you get into an accident, the car is a total loss, and you have actual cash value coverage, the insurance company will pay you the amount your car is worth, taking depreciation into consideration. That might be less than the amount you still owe on your loan. If you don’t have gap insurance, you’ll have to pay the difference yourself.

If you purchase a used car, depreciation will be less of a factor. A car that’s a few years old has already depreciated quite a bit. You’ll pay a lower price to buy it, and if you take out a loan, it will be for less than you would have to borrow to buy a new car. If the vehicle gets totaled, the sum that you receive might be enough to pay off your outstanding loan balance.

Get Help Finding the Right Auto Insurance Coverage

Car insurance can shield you from a major financial loss if you get into an accident, but you need to make sure that you have the right coverage. A member of the team at Petruzelo Insurance can discuss your needs and goals, explain your options, provide quotes from several leading companies, and help you select the policy that’s best for you. Contact us today to learn more.