Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. Through her years working in th...

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Reviewed by Melanie Musson
Published Insurance Expert Melanie Musson

UPDATED: Mar 13, 2020

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If you have never owned a new car before, you may be surprised at the cost of its insurance. On average, people with used cars pay less for insurance than those with new or leased vehicles. There are two main reasons for this: cost of the vehicle and coverage required. By knowing what affects your car insurance coverage, you can choose a policy that’s right for you and that will save you money.

Replacement Value

When a car insurance company insures your vehicle, it agrees to pay for the repair or replacement of your damaged vehicle whenever it’s involved in a qualifying accident. Because the company must be prepared to replace the vehicle if it becomes damaged beyond repair, it must have enough money set aside to pay the actual value of the vehicle. In order to compensate for this cost, individuals with more expensive vehicles will pay higher premiums than those who drive less-expensive vehicles.

This also goes for vehicle repairs; if a car can be repaired cheaply, the premiums will be much lower than a vehicle that requires specialized labor or imported parts. For example, electric cars and hybrids are more expensive than fuel-powered vehicles of the same make and model due to the specialized mechanics required to repair these vehicles. The same goes for vehicles that extensively utilize computer technology.

Used vehicles have usually depreciated in value and are worth less to replace than newer models. New cars may also have more advanced technology that could be costly to repair. This is doubly important for luxury vehicles and sports cars, which are some of the most expensive vehicles to insure due to their cost.

New vehicles do have one advantage over older models in regards to car insurance costs. New vehicles will often have a higher safety rating and more safety features than used cars. Your new car may have an anti-theft device installed or sustain less damage in an accident due to its engineering; this will result in lower rates than a car without these features.

Lien Holder Requirements

The other reason that new vehicles cost more to insure than used cars is that most new cars are financed. If you are making payments on a vehicle, you must carry full coverage auto insurance on the vehicle until the loan is paid off. Depending on the cost of the vehicle and the amount of your payments, this can take a substantial period. You might also have to pay for additional loan gap coverage, which will add to your monthly premiums as well.

Full car insurance coverage includes several different types of coverage and is more expensive than a basic liability policy, sometimes substantially so. In order to keep the price reasonable, you may need to carry a high deductible on your policy, which raises the amount of repairs that must be paid out of your own pocket in the event of a claim.

Once your vehicle is paid off, you can drop your coverage down to a liability-only policy if you choose. This may not be a wise choice if your vehicle is still new or valuable, however. You should usually consider carrying full coverage auto insurance until the vehicle has depreciated and is no longer worth repairing.

Whenever you purchase a new or used vehicle, there are several ways to keep your premiums affordable. The most important is to maintain a safe driving record; the fewer accidents or traffic violations you have on your policy, the lower your rates will be. You can also raise your deductibles or lower the limits of your liability insurance.

In addition to these methods, you might also qualify for a discount with your insurance company. Ask if you can take advantage of any multi-policy, safe driver or other discounts through the company. You might be able to take a defensive driving course to receive a rebate on your premium, or you could reduce your rates by adding additional safety features to your car.

The best way to determine how to lower your car insurance rates is by speaking with car insurance companies, either through the customer service line or by calling your local agent. By discussing the policy with your company you can determine the best coverage to meet your needs while remaining affordable.

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