Cost New – Business Auto Insurance

Written by Eric Petersen, CIC

A common question we get asked is what does the “Cost New” value mean on my Business Auto policy?

If you look on your Business Auto insurance declaration page you will see a dollar value listed for each of your trucks and trailers under the heading of “Cost New”.

This number is an important underwriting guide for the insurance company from an insurance pricing and claims standpoint. It does not set the limit of coverage for the vehicle but can cause problems with a claim and on your renewal if the amounts are drastically off. I’ll explain more on this at the end of the article.

First, let’s discuss what Cost New is and how it is calculated. 

The Cost New value should reflect the amount that truck cost when it first was manufactured.

This value is initially filled in by the insurance company with information they have on the vehicle according to the Vehicle Identification Number (VIN). It applies to only what would have been included from the manufacturer and does not account for any aftermarket parts or permanently attached items.

Many of the trucks and trailers that tree care companies own and operate have aftermarket parts/equipment added that dramatically changes the value of the truck. Think about the traditional forestry unit where a dump body and aerial lift or knuckleboom crane attachment are added onto a bare cab and chassis. That completely changes the value of the truck and it is so important to ensure that your Cost New values on your policy reflect the total value of the truck and attachments when it was first manufactured.

For example, (please note I’m making these numbers up!) let’s take a 2018 International 4700 with a forestry package (dump body and aerial lift) on it. The VIN of the truck will pull the Cost New of the cab and chassis. For this example we’ll say that number is $90,000, but the truck didn’t come off of the International assembly line with the dump body and aerial lift. Those parts were added afterwards. For the dump body and aerial lift components, we’ll assume they were $70,000 together. The value that should be listed on your insurance policy for Cost New will be $160,000. It doesn’t matter if you got a good deal for this unit in 2020 and only paid $100,000 for it as the Cost New is going to reflect the cost at the time it was manufactured and has nothing to do with what you paid for it. 

So how does Cost New affect the price you pay for insurance on the unit and will it affect how a claim is resolved?

The premium for physical damage coverage (Comprehensive and Collision) that the insurance company charges factors in the Cost New. So a higher Cost New will produce a higher premium and vice versa. That said, many tree care owners try to lower the Cost New to lower their premium. However, when a claim is filed for a vehicle the claims adjuster will look at the insurance policy to see the Cost New and any description of permanently attached equipment, in addition to the mileage and overall physical condition of the vehicle as well as finding the value of comparable vehicles to help determine what the appropriate value of that vehicle is. Having the most accurate Cost New, will help the claims adjuster give you the best value for the vehicle. To reiterate, the Cost New is not the coverage limit placed on the vehicle, but rather a factor that the claims adjuster will use to determine the amount they will pay for your vehicle. 

Lastly, we have seen insurance companies want to non-renew business auto policies with intentionally undervalued Cost New amounts. The insurance companies need to collect adequate premium for the exposure that they are insuring so they can be financially strong enough to pay the claims that they have promised to their policyholders. Since the Cost New plays a role in determining the price of your policy, the insurance company will want a reasonable value listed. 

To avoid any issues with claims or the renewal of your business auto policy, we always recommend to go through your vehicle list with your agent and ensure that not only are the vehicles listed correctly, but that they have proper descriptions of any permanently attached equipment and the Cost New accurately reflects a realistic amount.