Is your favorite classic car properly insured?

[Editor's Note: This article originally appeared in the July 2010 issue of Classic Motorsports.]

Some collectors start with a pile of crusty bits and then spend countless hours and a safe full of money turning it into a show winner. Others buy their toys already restored. Either way, those investments need to be protected.

Classic car insurance grew out of the fine art insurance business more than 50 years ago. Car collectors—and insurance providers—saw the need to protect valuable antique and classic cars, much like they did costly paintings, jewelry and sculptures.

Those fine art items are appraised, and values are agreed upon to set premium costs and loss payoffs. This is how most collector car policies work today, and dozens of companies compete for your business across the country.

Oddly, despite the low premiums and very generous coverage, an array of classic car owners aren’t taking advantage of this service.

Your Car Is Unique

Let’s say you’ve just bought that creampuff 1970 Triumph TR6. You want to take advantage of your policy’s multiple-car discounts, so you call your agent and add the Triumph to your family policy. Most of the time, the agent will do exactly that.

This is a bad idea. You’re adding the Triumph to a policy designed for daily use vehicles.

“Those insurance agreements are different,” explains Ford Heacock, president of Heacock Classic Insurance. “Your family auto policy provides coverage on an actual cash value basis, meaning that in case of a total loss, you’ll get paid the actual cash value of your car. That value is not determined when you buy the policy; it’s determined at the time of the claim, and it is the depreciated value.”

Some collector car owners with cash value coverage end up coming to a dismaying realization: The day after an accident—or fire, theft, or other loss—is not the best time to establish a vehicle’s value. Sometimes it gets worse from there: Often the repair shops favored by family agents can’t help when a damaged classic needs specialized bodywork.

Agreed Value With a Specialized Provider

Classic car insurance experts recommend an agreed value policy, which specifies the amount the owner will be paid in the event of total loss. To establish this value, the provider uses a combination of experience, database research, expert contacts and price guides along with your input, including photos and documentation. For megabucks exotics or customs, a provider may require a professional, written appraisal—possibly done at the owner’s expense—to help establish an agreed value.

Stated value coverage, which sounds similar, is not the same. “Say, for example, your Big Healey has a $45,000 stated value,” said Jim Fiske, U.S. marketing manager for Chubb Personal Insurance. “You assume you will get $45,000 for it, but what a stated value policy means is you’re actually going to get the lesser of $45,000 and the current actual cash value of the car. Stated value is a provision written to protect the insurance company.”

Only with agreed value coverage do you have a guarantee. If your classic is valued at $85,000 and it must be written off, that’s what you’ll collect: $85,000.

If an owner feels that their car’s value has appreciated, or if improvements have been made, coverage can be added. To make this easier, some companies automatically make the adjustments. American Collectors Insurance, for example, writes policies with an automatic “inflation guard” that increases the agreed value coverage by 2 percent per quarter.

Restrictions May Apply

Once value is established, classic car policies are written with restrictions. A policy may have specified annual mileage limits—2000, for example—or wording that limits use to shows, parades and club events. Some providers allow “pleasure driving” as well.

“All specialty plans limit use or mileage,” says McKeel Hagerty, CEO of Hagerty Insurance. “Intended use is part of the decision to insure you. We don’t have mileage restrictions; we look at limited usage. We only insure cars used for enjoyment and enthusiast activities, not for primary or daily use.”

Providers agree that mileage plans and use restrictions are based on the honor system, and their claims experience shows that the majority of collector car owners observe these restrictions.

Making the Cut

Just like traditional auto insurers, those who write collector policies also look at driving records. As noted by Laura Bergan, vice president of marketing for American Collectors Insurance, a clean driving record greatly helps car owners get coverage.

In addition, providers will verify that an applicant also owns a dedicated daily driver. This is to ensure that the classic vehicle isn’t being used for general transportation. Companies usually want proof that the classic is stored in a secure, safe place. They may even request photos of the garage or storage building.

Most policies won’t insure primary or household drivers under the age of 25. However, there are companies that require only five years of licensed driving.

Other restrictions, as they say, may apply, but few policy holders bother to read the fine print. One provider told us, “Most of our customers know more about their cell phone contract than they do about their classic car policy.”

What Can I Insure?

Some providers require that an insured car be at least 25 years old. Others will write a policy on a late-model classic—say a 2005 Mustang Bullitt—if the owner can prove that the machine lives a collector car life.

Some companies will accept modified cars. In fact, most will insure kit cars, resto-mods, street rods and customs as well as cars under construction or restoration.

Even if a classic car can’t move under its own power, insurers say it’s wise to buy comprehensive coverage to protect it against fire, theft and vandalism. In addition, providers suggest checking a shop’s insurance before leaving your car for an extended visit. This is also the time to find out where the car will be stored when it’s not being worked on in case there is a claim.

Insurance on the Cheap

Considering what a classic can be worth, premiums can be a bargain. Of course, we need to state that exact premiums vary depending on insurance carrier, home state, driving record, modifications made, vehicle storage location and a few other factors.

Providers offer coverage at these prices because their experience demonstrates that classic cars are generally well cared for, driven responsibly on a limited basis, and stored securely. One insurer summed it up nicely: “Some of these cars get more attention than spouses.”

Of course, the greater a car’s value, the higher the premium. Having a plan that allows more mileage can also lead to higher rates. Some policies reward those with multiple collector cars by allowing them to pay for liability coverage on just the first vehicle.

Having a deductible on the policy can also affect premium cost. Some companies even offer payment plans.

How About Racing?

There is one place where the coverage stops: the edge of the race track. Just about every policy excludes any on-track activity, sametimes also including racing schools, autocrosses and touring laps.

Ford Heacock, who founded the SVRA and raced in vintage events for years, puts it this way: “A number of companies have come and gone, attempting to make money selling on-track insurance. I haven’t seen one yet that survived.”

Simply put, the mainstream underwriters see the on-track risk as too great. (However, racers who can afford a bundle may buy special event coverage from niche insurers.)

Don’t get us wrong—race cars can be covered, just not when they’re on track. An owner could still suffer a loss in the pits, on the way to an event, or while storing the car at home.

After an Incident

It’s the call that all classic car owners hate to make: “Hello, some guy ran into me.” After an incident, normal accident procedures apply. Check for injuries, call the cops, take photos, and phone your agent ASAP. If you can, secure the car so it doesn’t suffer further damage.

For help on the road, some classic insurance policies include flatbed towing and roadside assistance. We learned—no surprise here—that classic car drivers are six times more likely to use this service than folks with daily drivers.

Providers know that classic cars need specialized attention. Most will allow owners to choose the shop when it’s time for repairs. Some will even let owners make their own repairs.

Detailed documentation of a car’s condition before the accident always helps smooth a claim. Naturally, providers will investigate claims to minimize fraud.

Silver Lining

Despite the gloom that has shrouded the auto industry—and our economy—for the last two years, the classic and collector car hobby has remained relatively robust. The insurance providers say that owners are still driving and enjoying their cars.

“We’re pleased at how resilient the hobby has been,” says McKeel Hagerty. “There is a stable core of people who are really into it.”

Paul Jakubowski, senior underwriter for J.C. Taylor Specialty Automobile Insurance, adds that unlike some investments that have taken a beating during the downturn, collectors view their cars as tangible, enjoyable assets: “Their car is right there. They can view it and touch it and drive it and know that it’s still worth $25,000 regardless of what the stock market is doing.”

If you’re still undecided about why you need to protect your baby with specialized coverage, reread the scenarios at beginning of this story—accidents happen, but fortunately they don’t have to turn into financial crises. And if you run across a classic insurance representative at a car show or hobby event, have a chat. They’ll be happy to share a dozen more stories just like those.