Is it always cheaper to insure a used car?
It’s not always cheaper to insure any used car than any new car. We all know that insuring a rare classic car or older custom sports car will probably cost more than covering this year’s sedan or hybrid. However, if we’re going to compare apples to apples, it’s probably safe to say that we could save some money on our premiums by buying an older car.
Insure the full value of the vehicle
To understand this, it’s important to think about how insurance companies set their rates. Of course, they will base the premium on the value of the vehicle they have to insure. So if you can buy a 5 year old model for $6,000 vs. the current model for $16,000, your premiums may be adjusted lower. Of course, this will be mostly true if you need comprehensive coverage and not just liability coverage. Liability is what covers the “other guy.”
Of course, if you can pay cash for a used car, rather than take out a large loan, you have a better chance of saving on your car insurance premiums.
Do you need full coverage?
You almost always need liability insurance to satisfy your state’s requirements. But you can choose to go full coverage. Most of the time, lenders will require comprehensive coverage to protect the asset they are lending you money to purchase. But you will not have this requirement if you have a loan. Of course, you can still choose to purchase this additional coverage, but you don’t have to purchase it. This means you will have to pay for damage to your own vehicle if the accident is your fault, but you will save on your monthly insurance bill.
This may seem risky, but insurers will only “total” a vehicle up to book value anyway. It doesn’t matter how much it will cost to replace the car or how much balance you have on your loan. If your oldest car has a book value of $2,500, it may not be worth paying for full coverage. That’s a personal decision, and you may want to discuss your options with an insurance professional.
gap insurance
GAP insurance is a product that actually covers the difference between the book value and the loan value. These days, many borrowers are “upside down” on their loans for a variety of reasons. For one thing, the book value of any vehicle tends to drop by 20% by the time it leaves the lot. On the other hand, many borrowers tend to include other items in the loan, such as collateral or taxes, that do not increase the value of the car.
So if you can buy a used car and pay cash, you may choose to avoid full coverage. You will also avoid paying for GAP insurance. This will save you some money.
Used cars aren’t always cheaper to insure
For one thing, insurers base premium rates on a number of things. The type and age of the car are important, but so are the driver’s claims history, age and zip code. In addition, insurance companies take into account the claims history of certain car models. A new car with security features and anti-theft devices can be discounted so heavily that it will cost less to cover than an older model.
