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.
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
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.
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.
