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Is Insurance Higher on Newer Cars? Everything You Need to Know

Thursday, 16 November 2023

If you are in the process of replacing your current vehicle or are looking to buy your first, there are many things to consider before you decide on which car to purchase. For example, the price, size, and fuel economy are all important factors that can sway your final decision one way or the other. That said, one aspect that is sometimes forgotten about is how much a car costs to insure.

Several elements play into the dollar figure you will pay for auto insurance, but one feature that people are often curious about is how much a car’s age will influence their premium. In this blog, we will answer the question, “Is it more expensive to insure a new or old car?” and discuss different variables that can make a big difference in how much you pay to protect your next vehicle.

Is Insurance Higher on Newer Cars?

You’ve probably heard that insurance rates can vary, but is insurance higher on newer cars across the board, or are there specific factors that influence premiums? Generally speaking, insurance for new cars tends to cost more. When looking at new car vs. used car insurance in Canada, there is no one-size-fits-all policy for either option. That’s because specific details about the car or cars you are considering purchasing will have an effect on how much your insurance premium is.

So why are newer cars more expensive to insure? The main reason has to do with the replacement cost of the vehicle in the event of a total loss. A new car's actual cash value (ACV) is typically higher than that of a used car. The ACV refers to the amount that someone could expect to pay for the car based on its current condition. The newer a car is, the more likely it is to have a higher actual cash value. As a result, this means that replacing it in the event of a total loss would cost more compared to an older vehicle. Additionally, new cars tend to have pieces with advanced technology, such as cameras, sensors and lasers installed within them which can be expensive to replace or fix.

Conversely, older and used cars will usually cost less to insure. Due to depreciation, the ACV of an older car will be much lower when compared to a newer car of the same make and model. This means that they will cost less to replace, and the amount you pay for insurance will reflect that. Depending on their age, older cars will likely come without all of the bells and whistles that can be expected with the latest version of the same vehicle. This makes for a much more simplified claims process for insurance providers as there are not as many expensive or unique parts that need to be fixed following an accident.

Factors that Influence Insurance Costs

Regardless of the vehicle you decide to buy, there are factors that will always play a part in determining the price you pay for insurance. This includes:

  • Your deductible amount: The amount you pay for your deductible will directly influence your premium. If you want to have a lower premium, consider increasing your deductible. If you want to avoid paying a higher amount in the event of a claim, then consider a lower deductible. Keep in mind a lower deductible will lead to increased premiums.
  • Your driving record: Do you have a history of receiving speeding tickets? Have you been found guilty of more serious violations like reckless driving or driving under the influence? If so, these will be taken into consideration by insurance companies to determine your level of risk. Maintaining a long history of safe driving can help keep costs down.
  • Your claims history: Have you been involved in multiple at-fault accidents? If so, this can lead to a substantial increase in your premium. Even if the accident was not deemed your fault, some insurance companies might factor in the incident when determining your rate. A history of filing numerous claims, even more minor incidents, can also lead to higher premiums.
  • Where you live: Do you reside in a neighbourhood that has higher rates of theft and vandalism? This, too, can have a big impact on how much you pay for insurance. Additionally, areas known for having higher accident rates, heavier traffic, and severe weather events can deem your vehicle a higher risk for insurance companies.
  • How you use your car: Your driving habits are also pivotal in determining insurance rates. If you will be commuting long distances for work or will be on the road frequently, the likelihood of you being in an accident increases. Parking your car on the road vs. in your driveway or garage can also lead to increased insurance due to a higher risk of it being hit.

To provide added context on why newer cars are more expensive to insure, we have highlighted some other important factors that determine the rates of insurance on new vs. used cars.

Vehicle Safety Record

Newer cars often come equipped with advanced safety features and technology, such as collision avoidance systems, lane departure warnings, and automatic emergency brake systems. They are also built to meet the latest safety standards and regulations. These standards often evolve over time, meaning that a newer vehicle may have enhanced safety features that meet or exceed current requirements.

While older cars might lack some of the advanced safety features found in newer models, there is a chance they might still maintain high safety ratings, especially if they were equipped with advanced safety features when manufactured. While this could impact insurance rates, some insurers take into account the overall safety record of specific older models.

Additionally, safety organizations conduct crash tests to evaluate the performance of vehicles in various collision scenarios. Insurance companies often consider these crash test ratings and safety features when determining rates. Cars with better ratings and features are generally associated with lower insurance premiums.

Risk of Theft

Whether you own a new or used car, there is always a chance your vehicle could be stolen.

If you own the latest model of a high-end or luxury vehicle, there is a good chance it comes equipped with advanced technology, like keyless entry systems. Some thieves might try to exploit vulnerabilities in these systems and steal your car with the intent of making a quick profit from selling the car or its parts. In some cases, high-end cars are stolen simply for joyriding or temporary use. Thieves may use these vehicles for a short period and then abandon them, often leaving them damaged.

As for older cars, some models may lack the advanced security features that are found in newer editions, making them more vulnerable to theft. These vehicles may be more popular among people looking to buy a car due to their affordability, but this desirability also extends to thieves who might be interested in stealing a specific make and model of a car, knowing that it has parts that can easily be sold.

Thankfully, newer cars are coming equipped with advanced security features, such as sophisticated alarm systems, engine immobilizers, and tracking devices. There are also many aftermarket options that can be used in older cars. Your insurance premiums will likely increase if your vehicle is deemed as having a high risk for theft, but if there are state-of-the-art or adequate theft prevention measures in place, your insurer might use this information to lower your rates.

Cost of Repairs

The cost of repairs for new and used cars is a significant factor that influences the cost of auto insurance. Insurance companies take into account the potential expenses associated with repairing a vehicle when determining premiums.

As previously mentioned, newer cars often possess advanced technology, like complex sensors and electronics. They can also come with specialized parts that are unique to a specific make of car. In either case, the cost to repair or replace them can be expensive. In the event a repair is needed, many new car owners prefer to have their vehicles repaired at authorized dealerships to maintain warranty coverage. However, dealer repairs often cost more than those performed by independent repair shops. Given the likelihood that a repair will be expensive on a newer car, your provider will factor this in when determining your insurance rates.

Since older cars tend to have parts that are more readily available and less expensive, the cost of repairs tends to be much lower than new cars. Insurers may use aftermarket parts for repairs of used cars, which can be more cost-effective compared to original equipment manufacturer (OEM) parts commonly used for newer cars. Owners of used or older cars may opt for repairs at a garage they are familiar with or one that is known for having lower fees. Insurance companies will take these into account when finalizing your premium, but with all of these in mind, there is a better likelihood that your rate won’t be as high.

Coverage Requirements

The coverage requirements for new and used cars play a crucial role in determining the cost of auto insurance. Insurance companies consider various factors when establishing insurance rates, and these requirements can impact the overall premiums for both new and used cars.

Most people who purchase a newer car in Canada will usually do so through a lease or by financing. In these scenarios, the lender or leasing company typically has specific auto insurance coverage requirements to protect their financial interest in the vehicle. These requirements are often in addition to the mandatory coverage mandated by the province where you reside.

This typically includes collision coverage and comprehensive coverage. The inclusion of these forms of coverage will lead to increased premiums. Given the rapid depreciation of new cars, gap insurance is an optional protection that can cover the difference between the current market value and the outstanding loan or lease amount.

Since used and older cars are cheaper, many people are able to avoid relying on a lender and can purchase the vehicle with their own money. This means that they will not be forced into the collision and comprehensive coverage add-ons that are required when financing and leasing.

In this case, it might be best to just stick with the basic level of coverage that is mandated by your province. This would include coverage for liability, direct compensation, an uninsured automobile, and accident benefits. That said, the coverage you decide on depends on your personal preference and the different risks that you would like to protect your car from.

So Should You Buy a New Car?

As you can see, the decision on whether you should buy a new or used car has many moving parts. At the end of the day, it all depends on your current situation, budget, and reason for buying the vehicle. For instance, if you want to buy the latest version of your dream car and can do so using your own funds, then a new car is definitely a reasonable option for you. This will help you avoid having to pay interest on a loan and having to buy the additional coverage that lenders require. Just understand that your insurance might be more than some other vehicles out there.

Purchasing a brand-new car will also mean that you are inheriting a vehicle that is in perfect condition and has no history of accidents. This can provide peace of mind as you likely won’t run into any issues or need to schedule appointments for repairs in the first few years of owning it. It is important to note that if you are involved in an accident, your insurance will cover you; however, once you file a claim, there is a possibility that your rates might increase.

If you are trying to be more financially conscious and selective with your spending, a used or older vehicle is probably your best bet. The amount you spend to buy the car will be much less, and so will the amount you pay for your insurance.

Insurance Made Easy with BIG

So is insurance higher on newer cars? More often than not, you can expect to pay more than you would for an older car. Since possessing auto insurance is legally required before you can hit the road, it’s always best to consider a few different vehicle options that vary in make, model, and age before you pull the trigger on buying your next car. Once you’ve narrowed your search, contact a BIG broker. They will help you compare rates, explain which coverage options best suit you, and tell you how you can save on car insurance.

By: Devon Gribble