Most of the time, insuring a new car is more expensive than insuring a used one. While this may be a deciding factor for many drivers, there are other costs that come with cars besides insurance—monthly loan payments, registration and taxes, maintenance and fuel costs. There are also some circumstances where insuring a used vehicle might be more expensive than insuring a new one.
Right now, it is estimated that Americans spend around $10,000 a year on transportation. Add this to the fact that the average amount drivers spend on car insurance is $1,674 a year, and it becomes evident that about one-fifth of Americans’ transportation budget typically goes towards car insurance.
To keep your transportation costs reasonable, you may want to do a little research when trying to decide between buying a new car vs a used car, since insurance and other costs will vary.
What’s the difference between insuring a new car vs a used car?
While there are differences between insuring a new car versus a used car, there is not a universally true statement that can be made about used car insurance versus new car insurance. Generally speaking, used car insurance is cheaper than new car insurance but when you start comparing the cost difference between different makes and models, it gets a bit more complicated.
For example, some newer cars have better crash safety ratings and are easier to work on than some older cars. But newer cars are typically more expensive to repair or replace, too, which can drive up your car insurance premium. Oftentimes, the cheapest cars to insure surprise a lot of car buyers.
And of course, there are many other factors that affect what you pay for car insurance besides whether or not your car is new or old. How much coverage you purchase, your driving history, and whether or not you choose to finance may increase what you pay each year.
When you purchase car insurance, the question you must always ask yourself is how much financial protection do you need? Liability insurance will only protect you financially (up to your coverage limits) against misfortunes that you cause to others while driving. It will not repair or replace your car nor will it protect you if someone else hits you and does not have insurance or does not have enough insurance. For that type of protection, you might want to consider full coverage car insurance. Full coverage insurance is just an industry term that refers to collision and comprehensive coverage in addition to liability insurance.
Some of the other coverage types offered by many insurance companies include these types of policies or endorsements:
- Personal injury protection
- Medical payments protection
- Uninsured/underinsured motorist coverage
- Rental reimbursement coverage
- Ridesharing coverage
- Sound-system coverage
- Towing and labor cost coverage
- New car replacement coverage
- Gap coverage
Of course, not everyone needs sound-system coverage, nor does everyone need ridesharing coverage. It is a good idea to consider what you need for your financial protection. Speak with a licensed agent at your insurance company if you have any questions about what types of coverage might be right for you.
If you’re wondering do I need car insurance to buy a car or do I need insurance before I buy a used car, the answer to both questions is: it depends on how you are buying it.
When financing a used or new car purchase, your lender will typically require you to purchase both collision and comprehensive coverage in order to protect their asset. Furthermore, some lenders may go a step further and require gap insurance, too. Gap insurance covers the difference between a car’s depreciated value and the remaining loan amount if a car is totaled or stolen. Purchasing gap insurance when buying a used car is often not possible because insurance companies have very strict requirements about which cars can have gap insurance.
While using your gender and credit score has been banned in some states, many states allow car insurance companies to take this and other personal information into account. Other factors that may affect your premium also include where you park your car (driveway vs. street vs garage) and your driving history.
How do I find the right car insurance?
To determine the right kind of car insurance for you, consider your needs. Not every driver needs the same type of coverage outside of their state’s mandatory requirements. For example, some drivers may want insurance that includes roadside assistance, while others may be more concerned about finding the cheapest car insurance policy possible.
To find the right kind of car insurance for you, you may want consider the following as you search:
- Customer satisfaction: If customer service is important to you, there are several organizations that measure customer satisfaction. J.D. Power is a trusted source in the auto insurance industry. Graded on a scale up to 1,000 points, the best companies usually score between 830-850/1,000.
- Financial strength: A car insurance company’s financial strength is usually a good indicator of how quickly and well it can handle your claims. Companies with strong financial strength scores often have strong customer satisfaction scores, too. Consider referring to A.M. Best to find car insurance companies that have either received an A+ or A++, both of which are superior ratings.
- Coverage options: Look for car insurance companies that offer the types of coverage you want or need for your situation. Some companies offer lots of endorsement options, while others offer more slimmed-down policy options.
- Cost: Even if cost is not your number one concern, there is no reason to overpay for car insurance. Once you have decided what type of coverage you want, consider comparing quotes for the same coverage from multiple companies to find the best rates for you. Ask about each insurer’s available discounts, too, to save even more.
Frequently asked questions:
What is the best car insurance company?
Car insurance companies are not one-size-fits-all. The best car insurance company for you may not be right for someone else. Consider shopping around to get quotes from multiple companies to determine the best fit for you.
What is the average cost of car insurance?
Each state has its own average for car insurance, but the national annual average is $1,674 for full coverage car insurance. Some of the most expensive states for car insurance currently include Louisiana and Florida, while some of the cheaper states in 2021 are Maine and Ohio. Keep in mind that you may pay a higher or lower amount than your state’s average, because many things affect the cost of insurance besides your ZIP code.
What are the cheapest insurance companies?
Just like the ‘best’ car insurance companies, the cheapest car insurance companies will be different for everyone. If you have a poor driving history, you may find better rates with a company that specializes in high-risk drivers and offers lots of discounts. If you are a very safe driver, but own a more expensive car and live in a congested area, you might benefit from looking at companies that offer usage-based, or telematics, programs to help you save.
Bankrate utilizes Quadrant Information Services to analyze 2021 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Quoted rates are based on a 40-year-old male and female driver with a clean driving record, good credit and the following full coverage limits:
- $100,000 bodily injury liability per person
- $300,000 bodily injury liability per accident
- $50,000 property damage liability per accident
- $100,000 uninsured motorist bodily injury per person
- $300,000 uninsured motorist bodily injury per accident
- $500 collision deductible
- $500 comprehensive deductible
To determine minimum coverage limits, Bankrate used minimum coverages that meet each state’s requirements. Our base profile drivers own a 2019 Toyota Camry, commute five days a week and drive 12,000 miles annually.
These are sample rates and should only be used for comparative purposes.