Do you own a car that’s over ten years old? Are you insuring it just as you would a new car? If so, you might be overpaying for unnecessary coverage. Here’s all you need to know about old car insurance.
Are you overpaying for car insurance?
If you drive a new car, the chances are you’ve got full coverage car insurance for it. Full coverage car insurance ensures that you get enough compensation to replace your vehicle with a new one after an accident. But what if you own an old car? Is it necessary to maintain full coverage auto insurance then? The answer depends on several factors. However, you are likely overpaying for insuring an old car.
Read: Basic steps to take after a car accident
Here’s what we found…
After conducting a thorough study, our insurance analysts have concluded that it may be better to drop full coverage car insurance and instead switch to a liability-only car insurance policy for a car that’s over ten years old. Here’s why:
All cars depreciate over time. If your car’s value has hit rock bottom or thereabouts, you might be paying up to 50% of your car’s value every year for full coverage car insurance! If your car is over ten years old, the combined cost of car insurance and the deductible you have to pay for repairing your car after an accident is likely to be more than the vehicle’s value.
Read: Is new car replacement insurance coverage worth it?
Is full coverage insurance for an old car worth it?
Full coverage car insurance is generally a good investment for cars under ten years old. Our analysts found that if the cost of full coverage car insurance is lower than the car’s depreciated value, it is a good idea to maintain full coverage.
Let us suppose that you own a mid-size SUV that has an average value of $8,106 after five years of ownership. The average cost of full coverage car insurance is likely to be above $2,000 a year. Now, let’s assume you totaled your SUV in an accident, and you need to file a claim. In this scenario, having full coverage insurance could give you enough compensation to replace the car. However, it will impact your future car insurance rates.
After an at-fault accident, the cost of your full coverage policy is likely to double. That means your annual premium is likely to rise above $4,000, nearly half of your vehicle’s value. Even so, maintaining full coverage is a good idea since, after an accident that wrecked your car, you would still save around $3,000 over the cost of replacing the wrecked car out of pocket.
Read: How long does a car accident stay on your insurance record?
Here’s when old car insurance may not be worth it
The benefit of having comprehensive coverage for a car declines after a decade. Before an accident, ten-year-old cars have an average worth of $5,148 and cost $1,814 per year to insure. For those with clean driving records, their insurance rate equates to 35% of the car’s value. However, after a collision, the rates rise to 79% of the car’s value. In other words, the difference between the value of a ten-year-old car and the cost to insure it is only around $1,000.
Full coverage is a bad investment between 10 and 15 years after a vehicle’s model year. While the cost of full coverage by itself is unlikely to exceed the vehicle’s value, the cost of the policy is more likely to exceed the car’s value following an accident. On average, the cost of insuring a 15-year-old vehicle after an accident is 105% of the vehicle’s value.
It gets increasingly harder to justify paying for comprehensive coverage as one’s car ages. A driver could pay higher premiums for full coverage only to find out that their insurance would not cover the full cost of replacing their vehicle if it was totaled. Hence, it may be more cost-effective for some drivers to buy a newer car outright rather than commit to higher future premiums due to an accident.
Read: Guide to all kinds of car insurance discounts available
But what if I don’t want to buy a new car?
The alternative to buying a new car is to switch to a minimum coverage policy that simply provides liability coverage. With a liability-only insurance policy, your insurer would only pay for damages you caused to another person in an accident. Minimum coverage policies are substantially less expensive than full coverage policies since they provide less protection. However, minimum coverage can be a bad idea under certain circumstances. Click here to know more about the possible pitfalls of liability-only car insurance.
Read: Top 5 ways to slash your car expenses
Old car insurance FAQs
Is it cheaper to insure an old car?
Yes, most older cars are cheaper to insure than their modern counterparts. As vehicles depreciate, so do the potential insurance benefits in the event of an accident. However, many vintage cars or collector cars do not fall into this category.
Should I insure a 15-year-old car with full coverage?
Having comprehensive coverage on an older automobile is a waste of money most of the time. After an accident, you will most likely receive the car’s actual cash value, which is usually not much more than the premium.
Is it possible to get full coverage for a vintage car?
You can get a full coverage policy for a vintage car. However, your premiums will often approach, if not exceed, the value of the car. Hence, it may not be worth it.
What kind of auto insurance do I need for an old car?
Liability insurance and, in some areas, personal injury protection are usually all you need to drive an old car on public roads legally.
If you are looking for the best car insurance rates in your state, tap the banner above to use our car insurance tool. Our dedicated team of analysts can help you obtain quotes from several firms in under 10 minutes! What’s more, we keep your data protected while you get multiple quotes without affecting your credit score.
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