Meet Jim. He’s the proud owner of a 2015 Ford Mustang. Jim installed a lowering kit, added a Cat Back exhaust system, a new set of wheels and tires, upgraded the seats and got a custom paint job for his Mustang. Jim has spent a lot of money and countless hours working on his Mustang. If Jim happened to be in an auto accident, would any of these modifications be covered? If Jim didn’t let his insurance agent or insurance company know about the modifications, then the answer could be no.
Insurance was designed to protect people from financial hardships after a loss. Car insurance specifically helps drivers and their passengers for losses, that occur to their vehicle or medical injuries they suffer, as a result of a covered cause of loss. The most common coverages found on a car insurance policy are:
- Liability Coverage
- Pays for injuries to the other party and damages to the other vehicle resulting from an accident the policyholder caused. It also pays if the accident was caused by someone covered by the policyholder’s policy, including a driver operating the car with their permission.
- Uninsured / Underinsured Coverage
- Pays for the policyholder’s injuries and, in some states, property damage caused by a hit-and-run driver or a motorist without liability insurance. It will also pay when medical and car repair bills are higher than the other driver’s liability coverage.
- Personal Injury Protection
- This coverage is mandated by law in some states. The statutes typically require insurers to provide or offer to provide first-party benefits for medical expenses, loss of income, funeral expenses and similar expenses without regard to fault.
- Medical Payments Coverage
- Pays for medical expenses for bodily injury caused by an auto accident, regardless of fault. Coverage for persons other than the named insured and his or her family members is typically restricted to circumstances occurring while they are occupants of the insured auto.
- Comprehensive Coverage
- Pays for damage to or loss of your automobile from causes other than accidents. These include hail, vandalism, flood, fire, and theft.
- Collision Coverage
- Covers loss to the insured person’s auto caused by its collision with another vehicle or object.
- Loan/Lease Payoff Coverage
- A person or entity with a legally secured insurable interest in another’s property, usually a financial institution that loaned money to buy a car. The car is the loan collateral. If the auto is damaged in an accident, loss payments will be made to you and to the loss payee on your policy.
- Rental Reimbursement Coverage
- Pays a set daily amount for a rental car if the policyholder’s car is being repaired because of damage covered by the auto policy.
- Towing and Labor Coverage
- Pays for towing charges when a car can’t be driven. Also pays labor charges, such as changing a flat tire, at the place where the car broke down.
So why aren’t your modifications covered? The standard car insurance policy very likely only covers the original equipment included by the manufacturer. You may be able to get additional coverage for some modifications, but that depends on a few factors such as the cost of each modification and what kind of modifications they are. The coverage you might be able to get could only be for a nominal amount and could include a deductible.
What is considered a modification by an insurance carrier? The answer is a change made to a vehicle that makes it different from the manufacturer’s original factory specification. Modifications include, but are not limited to, changes to the audio system, interior, engine tuning, suspension tuning, body tuning or wheels and tires.
How do I make sure my modifications are covered? Matt Robertson, Managing Partner at Leland-West Insurance Brokers, has some suggestions: “If you are going to do a build, talk to the company and find out what their reporting procedure is. If they react badly this will give you some time to go find new insurance.”
What if you’ve already done modifications or bought a car with modifications? Matt offers this advice: “If you have a policy already expect to have trouble if you disclose mods after the fact. Now, if all you have is, say, a nice set of wheels, a stereo and redone interior, that’s going to cause much less of a stir (or possibly none at all) compared to a build sporting a twin turbo, big brakes, a mini tub and a roll cage. It’s all relative and it’s all different depending on the insurance company.”
Matt Robertson suggests asking your insurance agent the following questions when looking for car insurance for your modded car or soon to be modded car:
- Are my modifications covered?
- If yes, where does it say that in the policy?
- If yes, where do I disclose my modifications in writing so if there is a loss the company's acceptance of the modified vehicle and coverage for its modifications is clear and unambiguous?
- If modifications are covered, what’s the limit and the deductible on mods, if there are such things?
The goal with these questions is to take any uncertainty out of the situation.
If you have a lot of higher valued modifications, or custom one-of-a-kind modifications, make sure to discuss with your insurance agent an “agreed value” valuation for your vehicle instead of “actual cash value” which is found in most car insurance policies. In the event of a covered loss, with an Actual Cash Value valuation, the claims adjuster will look at your vehicle and find the typical value it should be based on depreciation and then pay that amount. You might find yourself out a lot of money for those expensive, one-of-a-kind modifications with an actual cash valuation. With an Agreed Value valuation, the insurance company and you agree on a value for the vehicle prior to the policy being issued. In the event of a covered loss, the insurance company pays the agreed upon amount.
When you boil it down, being upfront and honest is the only way to go. “Be straight with the company in advance. This is doing it the hard way because you may have companies walk away from you. But it’s going to be a lot harder if the worst happens and your insurance company walks away from you after a loss rather than before one.” says Matt Robertson.