Car depreciation and insurance

Though you may have purchased a brand new sports car worth $50,000, in a matter of months your car could be worth significantly less. That's because car values naturally depreciate over time, leaving you with the same car payments but with diminishing value. If you took out a five-year loan to purchase the vehicle, you'll still have to pay back the loan at its original value plus interest even though your car's value is no longer worth as much.

This disparity occurs every day in parking lots across America, and there is nothing drivers can do about it, even if they keep their cars in top shape. As soon as a car has been used, it's no longer worth as much money. That's why it's important to make sure you're confident in your purchase before making an agreement. In some cases it could be more financially sound to buy a used car because its value may not decrease as much or as quickly compared to a brand new model.

With that in mind iSeeCars.com compiled a list of new cars that depreciate the most in one year's time. Here's the top five and the percentage of value they lost, as reported by The Washington Post:

1. Hyundai Genesis - 38.2 percent
2. Smart Fortwo - 36.9 percent
3. Cadillac CTS - 36.9 percent
4. Chevrolet Impala - 33.5 percent
5. GMC Yukon - 32.8 percentIt can be frustrating to try and resell these vehicles if you choose to do so because your asking price will have to be much lower, which means you'll inherently be losing money on the deal. Phong Ly, chief executive of iSeeCars.com, noted that buying a car that is 1-year old can save a lot of money because buyers avoid the biggest depreciation that occurs in the first year, according to the Post.

"There are numerous reasons for the wide range of differences, but the most prominent factors that increase the price difference between a car's new and lightly used models are lower popularity compared to its competitors, a brand with reported dependability issues or expensive repairs or having just undergone a redesign," said Ly.

What happens to insurance?
If you intend to keep your car for a long time, then it's crucial that you update your auto insurance policy throughout the years to make sure you're not overpaying for a car that is losing value.

Though the majority of standard car insurance policies, like comprehensive coverage, aren't necessarily tied to your car's value, other policies are. For instance, collision coverage and add-ons that deal with accidents and repairs, will be affected by depreciation. That's because if you're in a wreck, the cost to fix your car could actually be greater than the value of the vehicle. When this occurs, car insurance companies render the car totalled, thereby taking your car off the road for good and forcing you to purchase a new car.

If you're a safe driver and refrain from risky driving habits, then you can avoid expensive repairs. However, even maintenance checks and replacement parts can be expensive if your car is a high-end luxury model.

Insurance companies typically charge you the same rate for years if you don't update your policy or get in an accident. And while you're paying the same rate, you could become overinsured because your car no longer needs as much coverage.

It's best to speak with your insurance agent often so that you can reevaluate your policies. You can save money by negotiating down your rates and remaining a loyal customer.

CoverHound provides insurance quotes online.

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