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How to Get Car Insurance for a Used Car

Learn about the process of getting a car insurance policy when you're buying a used car, including what to look for when choosing the right coverage.

Getting car insurance for a used car is pretty much the same process as getting coverage for a new car purchase.

But, there are some differences -- most of them subtle -- that you need to be aware of.

While you can generally expect car insurance rates for a used car to be less expensive than car insurance for a new vehicle, don’t expect big savings.

The basic coverages for a used car are the same as they are for a new car, so there won’t be any price advantage there.

However, there will be some savings in some secondary and optional coverage provisions that you’ll need to know about.

When in the Used-Car-Buying Process to Shop for Car Insurance

The time to shop for car insurance when buying a used car is before making the purchase.

This is no different from the timing for shopping for car insurance for a new vehicle.

It’s likely you have some idea what type of vehicle and price range you’re looking to buy in.

An auto insurance carrier will be able to give you at least a ballpark figure of how much the premium on that vehicle will be.

You’ll need to know what that is, because car insurance is part of the basic cost of owning a vehicle.

Sure:

You’ll have a monthly payment if you’re financing the vehicle, but car insurance is another recurring payment, whether that’s done annually, semiannually, quarterly or monthly.

Check the rate quotes for your vehicle

By getting advance quotes of the cost of a car insurance policy, you’ll know if you can even afford the vehicle.

That’s important because premiums can vary dramatically from one vehicle type to another.

For example, it’ll generally cost a lot more to insure a pickup truck, a classic car, or a sports car than it will for an ordinary vehicle. That’s because there are different risk factors associated with each type of vehicle. The vehicle type will affect your premium regardless of the age of the vehicle or its price.

If you have your sights set on a particular vehicle, finding out that the insurance premium is going to be higher than you expect may cause you to reevaluate what type of vehicle you want to buy.

In fact:

If the monthly car payment is low enough, you may pay more for car insurance—for certain vehicles in certain states—than you’ll pay for the monthly payment on the loan.

By getting an estimate upfront, you’ll be able to make that determination before you get involved in negotiations to purchase a certain vehicle.

Once you do choose what vehicle you want to buy, you should get a very specific insurance premium quote before closing the sale.

You can do this with a simple phone call to your current insurance carrier, generally in 30 minutes or less. It’ll be some of the best time you’ve ever spent, since it will give you the benefit of having real numbers.

Factors to Consider for a Used Car

As we discussed in the last section, type of vehicle will be an important factor.

Though you may be in love with a certain sports car, you may find the insurance premium cost to be prohibitive and choose to go in a different direction.

One of the biggest decisions you need to make about car insurance rates for a used car focuses around collision and comprehensive.

  • Collision will pay for repairs to your vehicle if you are involved in an accident that’s determined to be your fault.
  • Comprehensive covers damage to your vehicle when it’s parked or stored, and will pay regardless of who is at fault. It provides coverage if your vehicle sustains storm damage, if it’s hit by a falling tree or tree limb, or even if it’s stolen.

If you are purchasing a very old vehicle that has little in the way of market value, you may want to skip collision and comprehensive.

Be aware:

The two options can add hundreds of dollars to the cost of your annual car insurance premium, and since you will have a deductible before any benefits will be paid, you’ll need to match those numbers up against the value of the car.

For example, if the car has a market value of $1,500, and collision and comprehensive coverage will cost $400 per year, and you have a $500 deductible, collision and comprehensive may not make financial sense. After all, the most the insurance company will pay for damage or the loss of your vehicle will be $1,000. And, that benefit will be reduced by $400 per year as the cost of the coverage. If you have sufficient savings to replace the vehicle, that may be preferable to maintaining collision and comprehensive.

A frequent issue in the purchase of a used car is its intended purpose.

For example, if you already have a late-model vehicle that acts as your primary transportation and plan to use the used car only as a secondary vehicle, you may get a big discount with the insurance company for low mileage.

For example, the cost of car insurance if you only drive the car five thousand miles per year will be substantially less than it will be if you plan to drive 15,000 miles. Of course, if the used car is going to be your primary vehicle, that discount may not be available.

Financing vs. Cash - Does it Matter?

In the previous section, we discussed collision and comprehensive coverage.

These are generally optional unless you have a loan on the vehicle.

Since the used car you’re purchasing will serve as collateral for the loan you are taking to finance it, the lender will want to be sure that the vehicle is fully covered against damage, theft, or total destruction.

They’ll require both collision and comprehensive as a condition of the financing.

The cost of the vehicle may also affect whether or not you want to get financing at all.

While it’s typical to get financing on new cars—since the average cost of a new car is $38,378 in 2020—that may not always be the case with a used car.

If you’re purchasing a vehicle for a few thousand dollars, you may choose to pay cash for the car rather than finance it.

Not only may you not want a monthly payment on the vehicle—especially if you have a payment on another car—but you may be uncertain the vehicle will last as long as the loan term before you’ll begin needing major repairs.

What Coverage is Required and What Coverage is Optional?

The most basic coverage required on all vehicles, whether new or used, is liability.

That coverage will cover personal injury in an accident that’s determined to be your fault. Every state in the U.S. except New Hampshire requires at least a minimal level of liability coverage, which is determined by each state.

Minimum coverage limits are typically expressed in three numbers that look something like 25/50/15.

The first number represents the amount, in thousands, the policy will pay if there is an injury to one driver in an at-fault accident.

The second is the maximum that will be paid if two or more people are injured in an at-fault accident. The third is the maximum that will be paid for property damage caused in an at-fault accident.

Minimum liability coverages are established for each state. For example, in California, the minimum liability limits are 15/30/5; Illinois is 25/50/20; Florida is 10/20/10; New York is 25/50/10 and Texas is 30/60/25.

Though each state establishes minimum liability coverage limits, that doesn’t necessarily mean you should take the minimum just because you’re purchasing a used vehicle.

Liability amounts should really be determined by the value of your personal financial assets, much more so than the cost of the car.

If you’re a young driver buying your first vehicle, the minimum liability limits may be sufficient.

But if you own a home and have significant savings and investments, you may want to go with a liability policy that will protect the value of those assets.

Optional Coverages for Used Cars

The two primary types of optional coverage are collision and comprehensive, which we discussed in the previous section.

But, there are almost as many optional coverages available for used cars as there are for new cars.

Those options include:

Uninsured/under-insured motorist

This is coverage that will cover your expenses from an accident caused by a person who either has no car insurance or has inadequate coverage.

In some states, it’s a requirement.

Personal injury protection (PIP)

This may be necessary in certain states that have no-fault insurance laws, in which drivers commonly make claims against their own insurance company, regardless of who is at fault.

It will cover expensive bills and lost wages.

Guaranteed auto protection (GAP)

This may be less typical for used vehicles than new vehicles, since new vehicles lose value immediately after purchase.

But, GAP will cover the difference between the amount the insurance company will pay to replace your vehicle in an accident where it’s been totaled and the amount you owe on the car.

Personal umbrella policy (PUP)

This is additional liability coverage, over and above what’s offered by the basic policy.

It’s recommended for individuals with a high net worth who could potentially be sued for an amount that exceeds their basic liability coverage.

Rental reimbursement

Insurance companies typically offer this option to pay for a rental car while your vehicle is being repaired after an accident.

Roadside assistance

If you break down on the side of the road because of an issue like a dead battery or a flat tire, the insurance company will cover the cost of roadside assistance from an available service.

Towing

If your vehicle becomes disabled, the insurance company will pay for the cost of the tow up to certain limits.

This is just a sample of more common auto insurance options. Each company will have its own list, which may be more expensive than the one above.

Factors that Affect Premiums for a Used Car

The usual factors that affect all car insurance premiums also apply with used cars.

These include, among other factors:

  • your driving history,
  • the amount of insurance coverage you purchase, the type of vehicle, the number of miles you expect to drive it each year, and other factors.

One factor you may have working in your favor, one that will result in a lower premium, is the fact that a used vehicle is an older vehicle.

Car insurance companies often charge progressively less in premiums for older vehicles. 

Why?

The cost of replacement parts that may be needed because of an accident will be less expensive.

This is usually true because used car parts can be purchased for a used vehicle, while a late-model vehicle may require brand-new parts.

At the opposite end of the spectrum, however, are safety features. An older vehicle, 10 years old or older, may lack the latest safety features that provide discounts on newer vehicles.

In shopping for coverage for a used car, you should get quotes from several companies. Some will actually charge higher premiums for used vehicles while others will have lower premiums.

Bottom Line

Shopping for car insurance for a used car isn’t that much different from for a new car.

For the most part, the insurance company will know automatically that it’s a used vehicle and offer the appropriate options and premium level.

But, you should have a general awareness of how the process works, so you’ll be able to ask the right questions and know exactly when in the process you’ll need to begin shopping for coverage.