Is Car Insurance More Expensive for New Cars? And Cheaper for Used Cars?
Last Updated on December 13, 2021
Insurers use many factors to determine the price of auto insurance. For multiple reasons, insurance on new vehicles tends to be more expensive than insurance on old vehicles.
New cars cost more to insure because they’re more valuable. They can also be more expensive to repair.
However, new cars could also have extra safety and security features that make them cheaper to insure. Although new cars tend to be more expensive to insure than used cars, other factors play a large role in the cost of car insurance.
Keep reading to discover everything you need to know about the cost of car insurance for new cars versus used cars.
Table of Contents:
- New Cars Tend to Have Higher Car Insurance Prices
- Other Factors that Impact Car Insurance: New Versus Old Cars
- Compare Car Insurance Before Buying a New Car
- Liability Insurance Versus Full Coverage Car Insurance
- Drop Full Coverage on Older Vehicles
New Cars Tend to Have Higher Car Insurance Prices
New cars tend to have higher car insurance prices than old cars.
The biggest reason behind the price difference is value: new cars tend to be worth more than older, used vehicles. Insurers agree to cover this value when they sell you a car insurance policy.
Let’s say you just bought a new car for $30,000. If you crash that vehicle within the first few years of ownership, then your car insurance company will need to reimburse you for the actual cash value of the vehicle. That means you’ll receive $30,000 minus the depreciated value of the vehicle.
For comparison, let’s say you bought a used vehicle for $10,000. It’s a 10-year old vehicle with more miles. It’s worth much less than the new vehicle, which means your insurer is covering less value and taking on less risk. If you crash your old vehicle, then your insurer only has to pay $10,000 to cover the full value of the vehicle.
Insurance is all about risk. When an insurance company has to cover more risk, it will charge higher insurance premiums. The more expensive your vehicle is, the more risk the insurer agrees to take.
Other Factors that Impact Car Insurance: New Versus Old Cars
Other factors can impact the price of car insurance between new and old cars. Because of theft rates, repair costs, your driving record, and other factors, you could pay significantly more or less for car insurance on an old or new car:
Vehicle Safety Rating: Newer vehicles tend to have better safety ratings than older vehicles. Vehicle safety improves over time. A new vehicle might have extended safety features like passenger airbags, for example, that aren’t found on older vehicles.
Security Features: Newer vehicles may have more active and passive security features than older vehicles. Newer vehicles could have alarm systems, remote shutdown systems, and other systems that reduce the risk of vehicle theft.
Repair Costs: Repair costs vary widely across vehicles. Some vehicles are expensive to repair because they’re rare and use exotic parts. Other vehicles are cheap to repair because they’re common and it’s easy to find replacement parts. Insurers consider repair costs when calculating insurance premiums.
Personal Factors: Your age, driving record, annual mileage, and more all impact the cost of car insurance.
Coverage Options: Some drivers buy full coverage car insurance, while others buy minimum liability insurance. Depending on your aversion to risk and your budget, you could choose anywhere from basic car insurance to full coverage car insurance with all of the bells and whistles. The more coverage you have, the more car insurance will be.
Compare Car Insurance Before Buying a New Car
Buying a new car is exciting. However, it also comes with plenty of hidden costs. In addition to the cost of buying a new car, you need to consider the cost of car insurance.
Buying a new car could double or even triple car insurance premiums – especially if you’re upgrading from an older vehicle.
If you have driven the same car for ten years, for example, then you may be surprised by the cost of car insurance on a new vehicle. An old vehicle drops in value every year, lowering the cost of car insurance year after year. A new vehicle, meanwhile, should be much more valuable than your old vehicle, which means higher costs for insurers.
That’s why it’s important to compare car insurance premiums before buying a new car. Instead of just adding a car payment to your budget, you may need to add significantly higher car insurance premiums.
Liability Insurance Versus Full Coverage Car Insurance
Most states require drivers to carry liability insurance, which includes bodily injury and property damage liability coverage. You must have liability insurance to legally drive in most states.
However, liability insurance does not cover your own vehicle, nor is it affected by the value of your vehicle. Instead, liability insurance is affected mostly by your driving history and personal risk. If you’re more likely to cause an accident, then you’ll pay more for liability insurance – regardless of the value of your vehicle.
If you have full coverage car insurance, however, then you’re paying for collision and comprehensive coverage, which do cover the value of your vehicle. As the value of your vehicle increases, the cost of full coverage car insurance rises.
Here’s how it works:
Liability Insurance (Bodily Injury + Property Damage Liability Coverage): Liability insurance includes bodily injury liability coverage and property damage liability coverage. If you want to legally drive in most states, then you need liability coverage. With liability insurance, your insurance company covers any damage you cause to other drivers and property while driving. The value of your vehicle does not affect your chances of causing an accident, which is why liability insurance may not change significantly when moving from an old, used vehicle to a new vehicle.
Full Coverage Insurance (Includes Collision + Comprehensive Coverage): Full coverage insurance includes comprehensive coverage and collision coverage, both of which protect your vehicle. Comprehensive coverage covers theft, vandalism, hail damage, and other damage to your vehicle outside of an accident. Collision coverage covers damage from your vehicle during an accident. These coverages vary widely depending on the value of your vehicle and its repair costs. If you have a $30,000 new vehicle, then you’ll pay significantly more for full coverage car insurance than if you had a $5,000 used vehicle.
Drop Full Coverage on Older Vehicles
Many drivers drop full coverage on older vehicles because it’s no longer worth it. If your vehicle is only worth $3,000, then your insurance company will only pay you a maximum of $3,000 (minus your deductible) after an accident. Dropping full coverage could cut car insurance premiums in half, which is why many drivers drop full coverage on older vehicles to save money.
On a newer vehicle, you have more to lose by dropping full coverage. Your vehicle might be worth $30,000, which means it’s worth it to have full coverage car insurance. In fact, you may require full coverage car insurance if leasing or financing your vehicle.
Because people tend to have full coverage car insurance on new vehicles and only minimum liability insurance on older vehicles, insurance on old vehicles tends to be much cheaper than insurance on new vehicles.
Final Word on Insuring a New Vehicle
Car insurance tends to be more expensive on newer vehicles for a variety of reasons. Because the value of the vehicle is higher, insurance companies are taking on more risk. That means higher insurance premiums for you.
However, you could reduce the cost of new vehicle insurance substantially by shopping around, taking advantage of discounts, and choosing a new vehicle with extensive safety or security features.
