Used Car Insurance: Everything You Need To Know

Posted Thursday, Apr 25, 2024

Car prices are increasing, and the average cost of a pre-owned vehicle now exceeds $27,000. On average, people who own used cars pay around $500 monthly for their vehicle loans. However, purchasing a brand-new car is even costlier, as lendingtree reports that the average loan amount for a new car is around $400,000.

For the majority of drivers, it is more financially beneficial to buy a used car. Although buying a used car can save you money, insurance rates for pre-owned vehicles may not always be significantly cheaper. The insurance cost can vary greatly depending on the make and model of the car.

In this article, we'll explain everything you need to know about used car insurance, how much it costs, and the factors affecting insurance coverage.

What Is Used Car Insurance?

Used car insurance is an agreement between you and an auto insurance company that provides coverage for a car that is not brand new. The insurance policy sets out the conditions under which you will be reimbursed if you make a claim.

It offers protection for used cars against different risks that can result in significant damage to the vehicle. Some types of used car insurance include comprehensive coverage, which covers various risks such as third-party liability and personal accident coverage.

Types of Used Car Insurance Coverage

When insuring a pre-owned vehicle, you might need more coverage than the minimum required by your state for legal driving. Depending on the age and type of vehicle, the cost of purchasing extra coverage could be higher than paying for any necessary repairs or other expenses directly. Different types of insurance coverage are available to provide financial protection in case your car gets stolen, damaged, or completely destroyed.

Liability Insurance Coverage: Most states require some kind of liability insurance coverage. It is a car insurance policy that offers financial protection to a driver in case they cause harm to someone else or their property while driving. This type of insurance only covers injuries or damages to third parties and their property rather than the driver or their property. The driver's injuries or damages to their property may be covered separately under other parts of their insurance policy.

Collision Coverage: Collision insurance is a type of car insurance that pays for repairing or replacing your vehicle's parts if you are involved in an accident, regardless of who is at fault. While it is not legally required, it may be necessary if you are financing or leasing your car as per the lender's requirements.

Comprehensive Insurance: Comprehensive insurance is a type of car insurance that provides coverage for non-accident-related damages and theft of your vehicle. It includes fire-related expenses, vandalism, and damage caused by severe weather conditions. If you reside in an area with a higher likelihood of such incidents, comprehensive insurance might suit you.

Personal Injury Protection (PIP Insurance): Personal Injury Protection (PIP) insurance covers medical expenses for you and your passengers after an accident. It also provides coverage for lost wages, childcare expenses, and funeral costs. This type of insurance is mandatory in the 12 states that operate under a no-fault insurance system.

Uninsured Motorist Coverage: If you are involved in an accident with a driver who lacks liability coverage, uninsured motorist coverage (UM) covers the costs of repairs or medical expenses. Twenty-one states and Washington, D.C. have made UM mandatory in their minimum insurance requirements.

Gap Insurance: Gap insurance is designed for situations where your financed car is lost, stolen, or severely damaged (totaled) and helps cover the difference between the amount you owe on the car loan and the car's actual value. Gap insurance is unnecessary if you own your car outright or are not financing or leasing it.

Factors that Affect the Cost of Used Car Insurance

The cost of car insurance for a used car is influenced by several factors. While the age of the vehicle itself might not be a direct determinant, many other related aspects play a significant role. 

  • Vehicle’s Age, Make, and Model
    The type and age of your car can affect how much you pay for your used car insurance. Insurance companies look at how much it usually costs to fix or repair different types of cars when they decide how much to charge for insurance. Fancy cars with new tech and advanced safety features are more expensive to repair, so they usually cost more to insure than older ones with a lot of miles and basic features.
  • Your Driving Record
    Even a single speeding ticket or accident can make your used car insurance rate go up. Insurance companies usually look at your driving history for the past 3 to 5 years, but they might consider more serious offenses, like a DUI or multiple speeding tickets, for an even longer period. If you're new to driving and haven't had insurance before, you'll likely pay more for car insurance.
  • Location
    Where you live has a big influence on the cost of your auto insurance. People who live in crowded cities usually pay more for their insurance because there's a higher chance of their car being stolen, getting into an accident, or being vandalized.Many states require drivers to have a minimum amount of liability insurance, which covers damages to other cars, drivers, or passengers, and the amount of insurance required by your state can affect how much you pay.In addition to the basic liability coverage, some states also mandate that drivers carry personal injury protection. This coverage pays for medical bills if the driver or their passengers are injured in an accident. Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah are some of the states that require PIP coverage, according to the Insurance Information Institute.
  • Credit History
    In many states, your credit history can influence your used car insurance rate. Insurance companies look at your credit in a way that's similar to how they evaluate your driving record. Drivers with lower credit scores are seen as more likely to take risks while driving, which makes them high-risk borrowers in the eyes of insurers.
  • Gender
    The gender on your driver’s license can also impact your auto insurance premiums. Generally, women pay less than men, as they have fewer accidents or serious violations and are more likely to wear seatbelts.
  • Your Age
    Young drivers under the age of 25 and older drivers over 75 generally pay higher premiums for car insurance, because insurers see them as higher risk. Because of their lack of experience, young drivers are more likely to get into accidents or take unnecessary chances on the road. However, some insurance companies offer discounts for students and young drivers, which can lower the cost.
  • Marital Status
    Generally, married people pay less for auto insurance since they are often more experienced drivers. According to stats, it is a general belief that if you have kids, you are more likely to drive safely.
    Most insurers require you to include your spouse on your policy, even if they don’t drive your car. Having a joint car insurance policy is usually cheaper than having two separate ones, especially with a multi-car discount. However, if one partner has poor credit or a history of traffic violations, it can increase both of your insurance costs.
    In some states, you can list your partner as an excluded driver, which means their driving record won't affect your rates but, if they drive your car and get into an accident, it won’t be covered.
  • Claims History
    Insurance companies are reluctant to take risks and your record of claims made against an insurance policy will increase your premium cost. Review your claim history to analyze how much your insurance cost might rise, which can vary depending on the insurance provider and by state.
    Even one claim, where you weren’t at fault, can still raise your premium. However, some insurers have a policy that prevents your rate from increasing after your first accident, even when you are at fault. Generally, claims remain on your record for three to five years.
  • Limits and Deductibles
    Your insurance limit is the maximum amount your insurance company will pay for a covered loss. Usually, each type of coverage in your policy has its own limit, and you can often change it as per your preferences. Generally, the more coverage you buy, the more your insurance will cost. Your deductible — the amount you agree to pay before the insurance helps with a loss — also affects your premium, and choosing a higher deductible means you’ll pay less for your policy.

Are Used Cars Cheaper to Insure?

Usually, insuring a used car can be more affordable than insuring a new car, especially if you have comprehensive or collision coverage. This is primarily because used cars typically have a lower value, making them cheaper to repair or replace.

However, it's important to note that insurance rates depend on various factors, such as the specific details of the vehicle, your location, and the coverage level you choose, rather than solely on whether the car is used or new. Generally, there is no significant difference in insurance coverage between used and new cars. The considerations for standard coverages like liability, uninsured motorist (UM), and personal injury protection (PIP) are typically the same regardless of the car's age.

Gap Insurance On a Used Car

Some drivers financing or leasing their vehicle may owe more money than the car is currently worth. This can become a problem if the vehicle is stolen or damaged beyond repair. While comprehensive collision coverage from insurance can help, it only covers the depreciated value of the car.

Without gap insurance, you would be responsible for paying the remaining balance between the car's value and the outstanding loan or lease amount. Gap insurance is an additional coverage option that can be added to your existing car insurance policy. While it's not mandatory in any state, having gap insurance can provide extra financial protection if something happens to your vehicle.

While gap insurance is typically recommended for new cars because they lose value quickly, it can also be purchased for used cars. However, some insurance companies may only offer gap insurance for used cars under three years old. The cost of gap insurance for a used vehicle is usually minimal, but it can provide peace of mind if you owe more on your car than its current worth.

How To Get Cheap Insurance On a Used Car?

Here are a few steps you can take to make sure you get good insurance coverage for your used car at the most affordable rate.

  • Compare Prices
    Several auto insurance companies spend a lot on commercials claiming to have the lowest rates. However, there is no single insurer that offers the lowest prices to everyone. The car insurance company that is cheapest for one person in a particular location may be the most expensive option for a driver in a different state. The best way to ensure you're getting the lowest possible rate for your car insurance is to compare prices.
  • Ask About Discounts
    Car insurance providers often offer discounts to their customers. The specific discounts available can vary depending on the insurance company and the state in which you live. If you bundle your car insurance with other policies like homeowners insurance, you can often get a discount. Insuring multiple cars under one policy also qualifies for a discount, while maintaining a clean driving record is another way to lower your premium. Some insurers offer discounts if you pay your entire annual or six-month premium upfront. Additionally, being a member of specific professional organizations or affiliate groups might give you a discount.
  • Improve Your Credit Score
    Your insurance credit score is an important factor in the car insurance quotes you receive. According to a study, having poor credit can increase your car insurance rates by hundreds of dollars a year as compared to having good credit.
  • Choose a Higher Deductible
    The deductible is paid out of pocket before insurance coverage takes effect. By selecting a higher deductible, you can lower your insurance monthly installments. Ensure you can afford to pay the deductible if you need to make a claim.
  • Install Safety Features
    Some insurance companies offer discounts for safety features like anti-lock brakes, airbags, and anti-theft devices. Installing these features in your used car can help lower your insurance cost.

Should I Get Full-Coverage Insurance on a Used Car?

If you're financing a used car, it's important to consider whether you need full coverage insurance. Many lenders require full coverage to protect their investment and may not approve the loan without it. This can benefit you if your car is stolen or severely damaged. Before finalizing your car purchase, determine if insurance is necessary for used cars and if your lender requires it.

When deciding whether you need full coverage insurance on a paid-off used car, consider the value of your car and your ability to replace it if something unexpected happens, such as an accident or theft. Ask yourself if you could afford a down payment for another car. Review your budget to see what you can manage in the event of a sudden loss of your car. If you can't handle a new car payment or pay off the remaining balance on your stolen or totaled vehicle, opting for a comprehensive insurance plan may be wise.

Keep in mind that you don't need a full-coverage auto insurance policy to drive your used car. However, you'll need a policy that meets the state minimum coverage requirement.

How Much Does Used Car Insurance Cost?

When you own a used car that has been paid off, you usually only need to have the minimum insurance required by the state. However, your lender will probably insist on full coverage if you have an auto loan. According to research, the average national cost of full-coverage car insurance is $1,730 per year or $144 per month.

On the other hand, the average annual cost of minimum coverage, the bare minimum required by the state, is $635 per year or $53 per month. Remember that your insurance premium will vary based on factors such as the deductible you choose and the type of car you own.

FAQs About Used Car Insurance

Do I need insurance before I buy a used car?

You can technically purchase a vehicle without insurance, but you'll need car insurance to drive it home, whether it's new or used. This means having a policy that meets the minimum liability requirements set by your state.

How long do you have to get insurance after buying a used car?

How long you have to get insurance after buying a used car depends on your state, your insurance provider, and whether you already have an existing policy. You usually have a grace period of 7–30 days to add the used car to your existing policy. Some recommend contacting your insurance company on the same day you buy the car so they can add it and remove your old vehicle if needed.

Is Insurance Necessary for a Used Car?

Yes, insurance is necessary for both new and used cars. It helps protect you financially in case of accidents, theft, or damage to your vehicle.

How to Insure My Used Car?

Insuring a used car is similar to insuring a new car. Here are the steps to insure your used car:

  • Compare quotes from different insurance companies to find the best coverage options and prices for your used car.
  • Decide on the type and level of coverage you need for your car. The common types of coverage include liability, collision, comprehensive, and uninsured/underinsured motorist coverage.
  • Once you've selected an insurance provider, you'll need to provide them with the required information about yourself and your car, such as your driver's license, vehicle identification number (VIN), and any relevant documents.
  • The insurance company will provide you with a quote based on the information you provided. Review the coverage details, premiums, deductibles, and any additional terms and conditions.
  • If you're satisfied with the quote, you can proceed to purchase the insurance policy. Make the necessary payments and sign any required documents.

Is insurance for older used cars cheaper?

While each insurance policy and situation is different, it's usually true that insuring a used car is less expensive than insuring a new car. Older cars generally cost less to repair, and finding parts for repairs is usually cheaper for them as well.

How Does the Cost of Insurance for a Used Car Differ From that of a New car?

The cost of insurance for a used car is typically lower than that of a new car. This is because used cars generally have a lower market value, which means the insurance company would have to pay less in the event of a claim.

What Does Car Insurance Cover?

The coverage you receive depends on the options you choose. In most states, you are required to have insurance for bodily injury and property damage liability. This means your policy should cover at least the damage caused to other people's property and any injuries they sustain in an accident you cause, up to the minimum limits set by the state. However, your own vehicle and yourself may not be automatically protected with just the minimum coverage. To ensure you have the best protection for your specific needs, it's important to discuss the available coverage options with a local independent agent or representative from Travelers.

Do I Qualify for Any Discounts?

Many insurance companies offer various discounts that you may qualify for when insuring your used car. You could save based on how you choose to pay as well as when you pay your car insurance premium in full. Or you could save by paying through electronic funds transfer (EFT), payroll deduction or by consistently paying your premium on time.