When you are shopping for a new or used car, cost is sure to factor in as you weigh your options. You've likely budgeted a specific amount for the purchase, and you want to get the best value for your money.
When you're considering whether to purchase either a new or used vehicle, you may also want to think about the cost of car insurance. The age of the car you are purchasing can have a real impact on the auto insurance rates you'll end up paying.
Auto Insurance Rates on New Cars
Intuitively, you might expect that new cars would be more expensive to insure, as they have high market value and can be pricier to repair in the event of an accident.
While the relationship between a newer, more expensive car and higher insurance rates holds true in many cases, certain factors drive down new car insurance rates.
New car insurance can actually be cheaper because of increased safety features. Car insurance rates are determined partly by the expected damage to your car, and having more modern safety features lowers your rates.
The Benefit of Gap Coverage
If you have a loan or a lease on a new car, you can benefit from purchasing gap coverage. This will raise your premium price somewhat, but can save you from financial disaster if your new car gets totaled.
Essentially, gap coverage protects you from paying the balance between your car's actual cash value (estimated value) and how much you still owe on your loan.
Here's an example of how it works:
- You purchased your car for $20,000.
- You get into an accident after 10 months. Your car is totaled, but you still owe $18,000on your auto loan or lease.
- Your insurance company estimates your car's actual cash value at $12,000 and will reimburse you as such.
- With gap coverage, your insurance provider will cover the remaining $6,000.
- Without it, you're responsible for paying the $6,000 difference out of pocket.
To learn more, visit our Gap Insurance page.
Comprehensive and Collision Coverage
If your new car has a loan or lease, insurance requirements might include comprehensive and collision coverage. This is often required by lenders to pay for damages to the vehicle when you cause an accident.
Auto Insurance Rates on Used Vehicles
The more likely your car is to be stolen, the higher your car insurance rates; this means that you may actually pay more for car insurance if you purchase an older vehicle that has a high theft rate.
Newer cars may be more desirable but are actually targeted for theft far less often, as they are often equipped with anti-theft devices and GPS tracking systems. Also, car thieves tend to target older cars because they can easily disassemble them and sell their parts for profit.
The National Insurance Crime Bureau (NICB) reports that 7 of the top 10 most commonly stolen vehicles in 2012 were models dating from 1991 to 1999.
As you make your decision to buy a used car, check the car's VIN (vehicle identification number) and be wary if the car has ever been salvaged. If you decide to buy a used car, make sure you decide on the right car insurance coverage for your needs.
Deciding on Necessary Car Insurance Coverages
You can save money when insuring an old car by making sure that you only purchase the car insurance coverage you need. While you are likely required by your state law to purchase liability insurance(which pays for injuries and damages to others), you may wish to opt out of some of the extra coverages that offer additional protection.
For example, comprehensive coverage pays for damages caused by incidents such as fires, vandalism, and thefts that are not related to accidents. Collision insurance pays for damage from striking an object or another car.
Since the maximum payout you can get from comprehensive and collision insurance is the value of your car, purchasing these options might not be worth your while. Remember that if you have a loan or lease, you might need these types of insurance.
Buying car insurance for an antique car is different than for regular used cars because your classic car is worth more. Many car insurance companies offer collector car insurance for vintage models.
When you purchase your policy, check to be sure that your car meets the requirements for collector car insurance.
Choosing the Right Insurance Coverage
Whether you've purchased a new or used car, it's always a good idea to comparison-shop for the best rates on your car insurance. You can even receive insurance quotes online to give yourself an estimate of what you might pay for different auto insurance coverages. Regardless of your vehicle type or age, make sure to get adequate coverage that fits your needs and budget.