Like most people, you probably feel that car insurance is more of a hassle than anything else. It’s an added expense that makes owning a car just a bit more expensive, even though it doesn’t offer any clear benefits upfront.
Still, auto insurance is one thing you’ll be glad you paid for if you ever get into an accident, or God forbid if someone steals your vehicle.
Quite often, people look for tips on how to reduce the cost of their car insurance. In doing so, they stumble on a few myths or baseless assumptions. None of these could be more prevalent than the idea that insurance is cheaper for newer cars.
But is that true? Do insurance companies increase or decrease your insurance premiums based on how new a car is?
Well, yes and no. Like any other type of financial instrument, insurance policies are somewhat complicated. That’s why we’re going to explore this common assumption in greater detail through this article.
Does Car Insurance Increase or Decrease as the Car Ages?
When it comes to auto insurance, the first thing you need to understand is that the car’s age isn’t the only factor influencing how much you pay to keep that policy active. The vehicle’s age is just one among several factors that affect how much a car owner has to pay for insurance coverage.
Simply put, car insurance doesn’t go up or down based on the age of the car. Some car buyers will purchase a brand new vehicle and still have to pay relatively high insurance premiums. At the same time, drivers who own older cars with very high mileage might end up paying very little.
Aren’t you confused yet? Keep reading, and I’ll help you clear up some of that confusion.
Why? What Factors Affect the Cost of Car Insurance?
Here’s the one big idea you need to understand about insurance of any kind (like health, medical, and even auto insurance): it’s all about RISK.
The insurance policy is an agreement with the insurance company so that if anything wrong happens to your car, they'll have to pay for it.
Naturally, if there’s a lower risk of anything wrong happening to your car (like theft or a car accident), they’ll charge you a lower amount for that insurance coverage. On the other hand, if you pose a higher risk, they’ll have to charge you more.
So, if you want to understand what factors influence car insurance costs, you must understand how the insurance company measures the amount of risk your car faces.
Here are a few factors that influence that measurement, and therefore affect the cost of your car insurance:
1. The Car and Its Features
Let’s begin with the car itself. Yes, with a brand new car, you can sometimes get cheaper auto insurance. That’s usually because newer models have more high-tech safety features and anti-theft technologies, which lower the car’s overall risk of getting stolen or badly damaged.
However, newer models are also worth more. When a new car's market value is high, the cost of insuring it will also be higher than other vehicles.
So, you see, to answer the central question of this article, insurance can be cheaper for a new car (with the latest safety features). Still, it can also be higher depending on the market value of the vehicle.
2. Your Driving Record
Many people don’t know that the vehicle isn’t the only factor that affects the cost of its insurance. Another significant factor is the person behind the wheel.
The insurance company may consider you as an added risk if you’re a new driver with very few years of driving experience (or none at all). The same could also happen if you have many years of experience on the road but with history of getting into fender benders and other auto accidents.
In contrast, older drivers who have never made an insurance claim in their life could end up paying a lot less for auto insurance, regardless of the car they’re driving.
3. How Much You Drive
If you know anything about cars, you’ll know that a higher mileage leads to more wear and tear, and therefore more problems with the vehicle. Insurance companies also factor this aspect into the equation.
Suppose you drive cross country for work often. The insurance company could include this in their calculations for premium and fees.
4. Where You Park Your Vehicle
Believe it or not, where you park your vehicle can also be a factor. Typically, the insurance company will ask you about this when you first apply for an auto insurance policy.
But why would this matter, when it’s not directly related to the driver’s abilities or the vehicle’s safety features?
It does play a massive role in determining how much risk your car faces. You see, if you park your car in a covered garage all night, the stakes are lower. Your vehicle is harder to steal, and there’s less of a chance that rough weather could damage the car.
On the other hand, parking it on the side of the street under the open night’s sky exposes the car to a lot more risk and therefore a higher cost of insurance.
5. Your Age
At first glance, this might seem like a case of ageism. But the truth is that younger drivers are statistically inclined to have riskier driving behaviours. In auto insurance companies’ eyes, younger drivers will probably speed more and expose themselves to higher risks.
Plus, as mentioned earlier, younger drivers haven’t had enough time to prove on record that they’re safe drivers.
6. The Features of the Insurance Policy You Choose
As you can see, some factors are well within your control, like what car you buy and where you park. Others aren’t, such as your age and demographics.
But the one thing you need to know about auto insurance (or any other kind of insurance, for that matter) is that the policy is always customisable. If you want minimal insurance coverage, you will end up paying less for it. Of course, you’ll also receive less protection from that policy.
For example, some people choose not to pay for windshield coverage. That’ll make the insurance policy cheaper, but if your windscreen gets smashed, you’ll have to spend to replace or fix it.
On the other hand, if you prefer a comprehensive insurance policy that gives you all the extras that the insurer has to offer, your policy will be much more expensive.
Final Thoughts
Here are our final thoughts about auto insurance.
Firstly, don’t take the cheapest insurance policy you find. As mentioned above, you might not get the protection you’ll want if you ever experience theft or a car accident.
Second, ask lots of questions about the insurance policy and always read the fine print. Generally, people who sell you insurance have the best intentions. But you have a responsibility to do your homework and know what your insurance policy does and does not cover when the time comes for you to use it.
Car insurance isn’t cheap, so make sure you’re getting your money’s worth out of it!
To learn more about being a responsible car owner, be sure to check out the Blog at Carpart.com.au. There, you’ll learn everything you need to know to make the most out of your beloved vehicle!
By Ray Hasbollah