For collectors with just a single classic car in the garage, worth in the mid-five figures, an average premium is likely to be in the $200-$400 per year range, depending on the liability requirements of the state where the insured resides.

Like many of the insurance executives who operate in this space, Rick Drewry, a senior specialist in motorcycles and collector cars at American Modern Insurance Group, is a collector himself—and so able to give a good personal example of just how affordable coverage is. “I have four of my own classic cars, worth about $160,000, insured with American Modern, and I pay just $560 a year,” he says.

“It's very inexpensive coverage,” agrees Brent Skiles, an assistant vice president of underwriting at Grundy Worldwide, a division of Philadelphia Insurance. He says a typical premium at his firm will come in at about $400—though large collections of high-end vehicles can see premiums top $50,000.

2. Limited Use

The reasons for the substantially lower rates are twofold. First and foremost is that usage of these cars is expected to be strictly limited to special occasions—they are not meant to be used for the daily commute or taking the kids to soccer practice.

Jim Fiske, vice president and U.S. marketing manager for Chubb Personal Insurance, notes that with average premiums just one-third of what a traditional policy would be, it's imperative for Chubb during the underwriting process “to differentiate between people who want cheap coverage for their tired, old Plymouth versus the true enthusiast.”

“With respect to underwriting, we need to make sure the cars that want this type of coverage really are collector autos,” agrees Fiamma. “We encourage our insureds to use their cars; they're meant to be enjoyed—but not more than on a recreational basis.”

One basic way to filter out problem accounts: Insureds typically need at least one standard-insured auto for every licensed driver in the household. “If the insured's household has three drivers but only two cars, chances are the collector car is probably going to be used at a much different level than what is anticipated by the rating structure,” says Fiske.

Some policies will specify actual mileage limits. At American Collectors, for example, “most of our clients select the 2,500-mile tier,” says CEO Jill Bookman. “We do offer a 5,000-mile tier and a 7,500-mile 'Freedom Tier,'” which, for a roughly 50 percent rate premium, gives clients the flexibility to take the car to work once in a while or on vacation.

American Modern is “very diverse in how we set up a policy; we provide tons of options,” says Drewry. While the underwriter offers an unlimited-miles policy, it also offers less-expensive, mileage-restricted options. “We have a mileage program strictly to price correctly for people who don't use their cars a lot; someone who drives 1,000 to 3,000 miles should pay much less premium than someone driving 10,000,” he notes. American Modern also will allow people to drive the car to work for a surcharge.

Neither Chubb nor Chartis has explicit mileage restrictions, but Fiamma says 2,500 miles per year is generally agreed to as a reasonable amount of road use.

Grundy doesn't restrict mileage either. “These cars can be very valuable, but we don't expect them to just sit on a shelf,” says Skiles. “We expect people will take them to car shows. We don't request or clock mileage; if you want to drive across country to a car show, that's perfectly fine—just don't run errands to Home Depot.”

While carriers take a variety of approaches to usage restrictions, the end goal is the same: to significantly limit the time the vehicles spend on the road, which significantly limits the chance for accidents. 

But in addition to these usage restrictions, another factor helps keep premiums low—and helps make Classic Car insurance a very profitable niche for those providing it: Insureds tend to take very good care of their cars, treating them more like a painting—or beloved family member—than a mode of transport.

“Many of our clients never drive their cars—it affects their value too much,” says Chartis' Fiamma. “So it's a very profitable book of business. We rarely have to pay claims because our clients are so careful—the cars mean so much to them that they're rubbing them down with baby diapers.”

Adds Chubb's Fiske: “The passion of the insured is what translates to the profit from the insurance perspective. Collecting classic cars is a bit of a sickness. The insured will sometimes joke they love the cars more than their wives; most will admit their garage floors are clean enough to eat off of.”

3. Agreed Value

The third key characteristic of collector-car coverage is that policies are Agreed Value, not Actual Cash Value—a critical point for agents and brokers to communicate to clients.

Markets that play in the space will have a range of valuations they will accept from clients based on the make and model of a car. Clients whose proposed valuations are much higher would need to have the car independently appraised.

“In many cases, we know more about the values and trends in pricing than the owners do, so we'll work with them to ensure they get adequate coverage,” says McKeel Hagerty, CEO of Hagerty Insurance—which is estimated to have a 25-35 percent market share of all Classic Car premiums in the U.S.

Unlike traditional cars, the values for which tend to plummet the instant they are driven off a lot, classic cars—like a painting or bottle of wine—can substantially appreciate in value over time.

So “it's extremely important for owners of classic cars to remain aware of the value of their cars,” says Martin Hartley, COO of Privilege Underwriters Reciprocal Exchange, a specialty-insurance company that provides customized insurance to high-net-worth individuals. “The market values of classic cars are often set by auction—so if a particular car is 'hot,' an owner should consider getting their car reappraised to ensure they have an accurate valuation.”

Chartis offers a “market appreciation feature” through which it will pay 150 percent of the agreed value if it can be shown that a car's worth has increased since the policy was last updated. It also offers diminishment-in-value coverage: If a car was appraised at $100,000, but is worth only $80,000 following an accident and restoration, Chartis will write a check for $20,000.

 American Modern offers an inflation-guard feature that will up the agreed value by 2-3 percent annually, as allowed by the states in which it does business.