A car's age impacts auto insurance costs, with older cars being cheaper to insure as they depreciate.
As a car's value decreases, the insurance company faces a lower potential replacement cost in an insurance claim, so the premium decreases. Newer cars have higher repair costs and more features that increase auto insurance rates.
Understanding these factors will help you figure out the best choices when buying a car and choosing the right types of auto insurance coverage.
Is Car Insurance Cheaper for Older Cars?
Car insurance costs for older cars goes beyond depreciation. Newer cars have higher premiums because they're worth more and cost more to repair. Older cars don't always have cheaper rates though.
Depreciation is a major factor in car insurance rates. Since an older car is worth less, the insurer pays out less in a total loss. Hence the insurance premium costs less.
According to the National Association of Insurance Commissioners, comprehensive and collision insurance premiums drop around 8-12% each year as the value of the vehicle declines.
Not all old cars benefit from lower auto insurance rates. Cars that hold their value or have expensive replacement parts can still be costly to insure. This is the case with foreign cars because the parts can be rare or hard to find.
Newer cars come with advanced safety and security features like adaptive cruise control, blind spot monitors, automatic emergency braking, and anti-theft technology.
These features prevent accidents and reduce the severity of insurance claims, so newer cars are less risky to insure even though they're more valuable.
Older cars lacking these modern features may have a higher chance of costly claims. The insurance premium can be higher than a newer car in this instance.
While depreciation lowers car insurance rates for older cars, other factors, such as repair costs, safety features, and insurance company rating structures, can unexpectedly affect car insurance premiums.
Why is Car Insurance Cheaper for Older Cars?
Several factors affect car insurance premiums, including depreciation, repair costs, and the type of coverage required.
While older cars are generally cheaper to insure than newer cars, there are exceptions to this rule.
Depreciation - A car's value goes down over time, so the insurer wouldn't need to pay out as much if it is totaled. Replacement costs are lower for older cars and so are the insurance premiums.
Lower Repair Costs - Older cars are easier and cheaper to repair than newer cars. Newer cars frequently require special parts and newer expensive technology. Used or aftermarket parts for older cars are also more available, so repair costs are lower.
Less Coverage Required - If you're financing a car, the lender will require full coverage. Once the vehicle is paid off, the owner can reduce coverage to only state minimum liability, which is much cheaper. Many older cars are fully paid off, so their drivers can lower their insurance coverage and also their premiums.
Why Could Older Cars Be More Expensive to Insure?
Older cars can be more expensive to insure in certain situations listed below.
Antique or Classic Cars- These cars may require special insurance policies to value the car at its collectors value. These can be more expensive than regular coverage.
Limited Safety Features- Older cars may not have advanced safety features like automatic braking or collision avoidance, making them riskier to insure.
Expensive or Hard to Find Parts - Some older cars, especially rare or discontinued models, may have expensive or hard to find parts. This makes auto insurance more expensive because of the cost to fix the car after a collision.
Knowing these factors for insurance on older cars will help drivers decide on coverage options and what kind of prices to expect for a policy.
What Type of Insurance Coverage is Best for Old Cars?
As a car ages and depreciates, its auto insurance needs to change. Liability coverage is required in most states according to the National Association of Insurance Commissioners (NAIC).
Comprehensive and collision coverage may not be as cost-effective as liability insurance. Knowing which coverages to keep or drop will assist you in making the best decisions about insuring your older car.
All vehicles must meet state minimum liability insurance requirements. Some of these required coverages are listed below.
Bodily Injury Liability - Covers medical expenses and lost wages for others if you're at fault in an accident.
Property Damage Liability pays for damage to other people's property, such as other cars, fences, or buildings.
Personal Injury Protection (PIP) - Required in no-fault states, covers medical expenses and lost wages for you and your passengers, regardless of fault.
Medical Payments Coverage (MedPay)- This helps cover medical costs for you and your passengers, regardless of who caused the accident (availability varies by state).
Uninsured/Underinsured Motorist Coverage - Protects against drivers with little to no insurance.
Optional Auto Insurance Coverage for Older Vehicles
Collision Coverage - Pays for damage to your car if you are at fault in an accident. If your car is worth little, the cost of this coverage may exceed the payout, so it's not needed.
Comprehensive Coverage - Covers non-collision incidents like theft, vandalism, and weather damage. It's cheaper than collision but may not be worth it if the car costs little.
New Car Replacement Coverage-Designed for new cars, this coverage is not needed for older cars as it only applies to cars manufactured within a few years.
Gap Insurance-If you have a loan on your car, this policy pays off the difference between the outstanding loan amount and the car's value.
According to MoneyGeek, A common rule of thumb is the 10% rule. Suppose the combined annual cost of comprehensive and collision coverage is more than 10% of your car's value.
In that case, it may not be worth the money. If your vehicle is financed, lenders may require full coverage until the loan is paid off.
Older cars generally need less insurance coverage than newer cars. Knowing your car's value, financial situation, and risk tolerance will help you decide what insurance coverage is best for you.
Ways to Lower Car Insurance Rates for an Older Car
Owning an older car can save you on car insurance, but there are more ways to customize your auto insurance policy to save even more.
Your driving record, including a history of accidents and traffic violations, is a big factor in calculating your car insurance rates.
If you have a clean record, you may get lower rates. You can also save money with a few tips listed below.
Increase your deductible to lower your monthly payment.
Change your coverage by removing comprehensive coverage from the policy.
Compare quotes from multiple insurance companies to find the best price and coverage.
Ask about discounts for safe driving, bundling policies, or good driving records.
Trying some of the above tips for cheaper insurance for your older car.
Insuring Older Cars vs Classic Cars
Not all older cars are classic cars, although classic cars are older by definition. An older car is just an older model of an everyday car.
According to the Insurance Information Institute, a classic car is generally 20 to 30 years old and has a collectible value that exceeds its original sale price.
Classic cars are usually muscle cars, hot rods, collector cars, and vintage trucks that have been well-maintained or restored.
Classic car insurance is different from regular car insurance in many ways. The cost of classic car insurance is less than standard car insurance. To be eligible, there are mileage restrictions and storage requirements for the vehicle.
Classic car insurance policies have standard coverages like liability, collision, comprehensive and uninsured motorist.
They also have specialized options like agreed value, which is a payout amount based on the pre-determined value of the vehicle rather than market depreciation. They may also have spare parts coverage, towing, and repair services for classic cars.
Some insurers underwrite their classic car policies, while others partner with specialized insurance providers to offer coverage.
Classic car owners can buy through a traditional insurance company or work directly with a specialized provider to get a policy that fits their needs.
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