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Is Insurance Cheaper for Older Cars?

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Joel Ohman
Founder, CFP®

UPDATED: Mar 13, 2020

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Insurance Q&A: “Is insurance cheaper for older cars?”

The answer to this age old question is a big, fat “maybe.” Glad we could help!

On a serious note, there are a few details we need to discuss in order to give you an accurate answer.

The cost of auto insurance depends on many variables. Read more about how insurance rates are determined if you’re feeling frisky.

The Core of the Issue

Insurance premiums are based, in part, on the actual cash value of your car. If your car costs more to repair or replace (if it’s totaled) you insurance is going to cost more. Period.

Put simply, insuring a 2003 Honda Civic will cost less than insuring a 2011 Honda Civic.

Why? The insurer will have to pay a whopping $5,000 if the ’03 model is in a wreck. The same insurer will be on the hook for $22,000 to replace your brand new model.

Here’s the Catch

While liability car insurance coverage is mandatory in almost every state, you don’t necessarily have to buy a policy that offers full coverage, which costs more.

The extra insurance premium tied to full coverage is based mostly on your purchase of physical damage coverage.

Physical damage coverage includes both comprehensive and collision coverage, and is designed to repair your car in the event it gets “messed up.”

So it may not make sense to purchase this type of coverage for an older car (should I buy collision insurance on an older car?).

But physical damage coverage is mandatory if you lease or borrow money to get your ride. And the entity that owns the car will be listed as a loss payee on your policy.

In short, no physical damage coverage…no loan or lease.

[Is insurance higher on a leased car?]

Conversely, if your car is paid off (usually the case if it’s older), you don’t have to purchase physical damage coverage.

This will certainly save you a good bit of money.  Just be sure to have an alternate form of transportation lined up in the event of a wreck.

Read more: When to opt for liability only coverage.

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