If you’ve recently shopped for a new or used car, you may have noticed that vehicle prices have surged. Several factors contribute to these rising costs, including inflation, supply chain disruptions, and most notably, tariffs. While these economic changes affect car buyers directly, they also have a significant impact on auto insurance claims, making it more important than ever to understand how these shifts could influence your coverage and financial security.
This article explores how tariffs and rising vehicle costs affect auto claims and what you can do to protect yourself in the event of an accident.
The Rising Cost of Vehicles
Over the past few years, vehicle prices have increased dramatically. Here’s a breakdown of the current landscape:
- Average cost of a new car (pre-tariff): $49,388
- Average cost of a used car (pre-tariff): $26,446
- Expected price increase due to tariffs: $4,000 additional cost for both new and used cars
Financing these purchases has also become more expensive. With a $3,000 down payment and 9.095% interest over 72 months, vehicle costs break down as follows:
- New car: $838 per month ($10,056 per year)
- Used car: $423 per month ($5,076 per year), though securing a 72-month loan for a used car may be more difficult
For many families, these increases make vehicle ownership a more significant financial burden, particularly in the wake of an accident.
How Tariffs Impact Auto Claims
As vehicle prices rise, the cost of repairing and replacing cars after an accident also increases. Here are a few key ways tariffs affect the claims process:
1. Higher Repair Costs
The average time to get a vehicle into a body shop after a claim is about five weeks, and repair costs have climbed due to increasing labor and parts expenses. Tariffs on imported auto parts raise the cost of essential components, making even minor repairs more expensive. This means higher out-of-pocket expenses for those with limited coverage.
2. Increased Total Loss Determinations
With vehicle values rising, insurers are more likely to declare cars as total losses after an accident. Since repairs now cost more, a vehicle that might have been fixed in previous years may now be considered uneconomical to repair. If your car is totaled, you’ll need to replace it—at today’s higher prices.
3. Rising Insurance Payouts and Coverage Gaps
The average car accident settlement, which includes both physical damage and bodily injury, has risen to $212,325, according to a recent survey by Thomas Reuters. This increase underscores the importance of having sufficient liability coverage. While 100/300/100 liability limits were once considered adequate, they may no longer provide enough protection in the event of a severe accident.
4. Higher Out-of-Pocket Costs for Rentals
If your car is in the shop or deemed a total loss, you may need a rental vehicle. However, rental costs are rising as well.
- Minimum rental coverage provided by insurance: $30 per day
- Additional out-of-pocket expense for policyholders on basic plans: ~$3 per day
- Total rental cost for an average claim repair period (five weeks): $1,000–$1,500
Many drivers don’t realize they lack sufficient rental reimbursement coverage until they need it. With rental rates increasing, upgrading your policy to include a higher rental coverage limit may save you significant expenses down the road.
What Can You Do to Protect Yourself?
With vehicle prices and claim costs rising, now is the time to review your auto insurance policy to ensure you have the right coverage in place. Here are some steps to consider:
1. Review Your Liability Limits
With settlements increasing, standard coverage limits may no longer be enough. Consider increasing your liability coverage beyond 100/300/100 to provide greater financial protection in case of an accident.
2. Evaluate Your Rental Car Coverage
If your vehicle is damaged in an accident, rental coverage can prevent you from paying out-of-pocket for transportation while your car is being repaired. If your current policy includes only basic rental reimbursement, consider upgrading your coverage to better reflect today’s rental rates.
3. Understand Salvage Title Options
With rising vehicle costs, some drivers may consider purchasing a salvage title vehicle as a replacement after an accident. While these vehicles can be more affordable, they come with reduced insurance coverage and potential mechanical risks. If you’re considering this option, be sure to understand the trade-offs involved.
4. Consider Gap Insurance
If you’ve recently purchased a new car, its depreciation combined with rising costs may leave you financially vulnerable if it’s totaled in an accident. Gap insurance covers the difference between what you owe on your loan and the car’s current market value, preventing you from being stuck with unexpected debt.
Conclusion
With vehicle costs on the rise due to tariffs and inflation, auto claims are becoming more expensive, and insurance needs are evolving. Ensuring you have the right coverage for repairs, total loss situations, liability, and rentals can save you significant financial stress after an accident.
If you’re unsure whether your current policy provides enough protection, now is a great time to review your coverage options. By staying informed and making strategic adjustments to your policy, you can safeguard yourself from unexpected costs in the ever-changing auto insurance landscape.