Selecting the type of car insurance policy that is right for you is an important decision and may need to be revised several times during the life of your car. How much you pay for that insurance depends on the age of your car, the type of car and possibly the safety features.
If your premium is higher than you’d hope for, there are ways you can lower your costs, including eliminating unnecessary coverage. Particularly as your car ages, it’s important to review your policy to understand which policies are mandatory to purchase and which may be excessive.
How does the age of a car affect insurance premiums?
The age of your car is taken into account by your insurer when calculating your insurance premium, as it can determine what types of coverage may be required.
For example, a new car can benefit from the optional new car replacement coverage, which is not available for older vehicles. On the other hand, an older car with a lower value may not need comprehensive and collision coverage.
Aside from age, there are several other factors that affect how each individual’s car insurance is calculated, says Bronwyn Koopman, head of auto product for Farmers Insurance, including:
After your auto insurer determines what coverage is needed for your vehicle, they determine how much it will cost. Factors taken into account when calculating your auto insurance premium include:
Insuring a new versus used car
There is no set policy for a new car as opposed to a used car. But your coverage may differ depending on whether you financed the vehicle or bought it outright, such as the addition of gap insurance, which helps you pay off your outstanding car loan if your car is totaled or stolen.
New car: Buying a brand new car is a huge financial investment, and insuring your vehicle will help protect you against unexpected costs should something unexpected happen. This allows drivers to opt for full auto insurance for their new vehicle, which refers to adding comprehensive and collision insurance on top of your state or lender-mandated coverage.
There are different types of car insurance policies you can add, such as new car replacement coverage to your new vehicle insurance policy, which can cover the cost difference between a written-off version and a new version of the same vehicle. It’s important to remember that agreeing to additional coverage types increases the total amount you pay for your car insurance.
Used car: If you purchased a used vehicle that exceeds the age and mileage limits for new car replacement insurance, you do not need to purchase the optional coverage. In general, both new and used cars are required by states to have a minimum amount of auto coverage, including liability coverage for property damage and bodily injury and sometimes personal injury protection.
But as your car ages, you may be wondering if it’s worth continuing to pay for comprehensive and collision coverage, which helps pay for damage to your vehicle. A general rule of thumb is that if your vehicle is more than ten years old or is worth less than $4,000, you may want to consider dropping this additional coverage.
Paying for full car insurance on an older vehicle may not be the best use of your money, especially if the actual cash value of the car is less than the cost to insure the vehicle. If that’s you, consider consulting your local, experienced insurance agent about which insurance coverages are right for you, says Koopman.
How is car insurance calculated?
Auto insurance can be calculated based on several factors for your individual vehicle and can vary depending on your insurer.
Typically, most insurance companies determine your auto insurance coverage based on the age, make, and model of your car, and safety features such as a backup camera or a monitor that warns you that a vehicle is in your blind spot, says Koopman. But other factors that are taken into account include:
Your age: In general, older drivers are involved in fewer crashes than younger drivers. Because of this increased risk, insurance companies charge more to insure drivers under the age of 25.
Your gender: On average, men pay slightly more for car insurance than women. This is likely due to the fact that men are more likely to take risks behind the wheel, such as speeding and not wearing a seatbelt, which can lead to more serious car accidents, according to data from the Insurance Institute for Highway Safety.
However, the price difference between men and women narrows as drivers get older.
Check out this interactive chart on Fortune.com
Your credit: Insurers consider your credit-based insurance score as a way of knowing ahead of time whether you’ll make a claim on your vehicle and, if so, how much that claim could cost. To determine this score, your insurer takes into account information about your credit report, such as outstanding debts, bankruptcies and your credit history.
Your driving record: If you’ve been involved in multiple accidents or traffic violations, your driving may be flagged as a risk to your insurance company and the amount you pay for coverage may increase. On the other hand, a clean driving record is less risky to insure and can save you money on insurance premiums.
How often you plan to drive your car: If you plan to drive a lot of miles with your vehicle, there is a higher risk of being involved in an accident or sustaining damage to your vehicle. This allows auto insurers to charge you more. If you plan to drive only occasionally, your insurer may give you a small discount on your premium.
Where you plan to drive your car: Your insurance company takes into account the location of your vehicle to calculate the probability of accidents, theft and vandalism. Typically, people in big cities pay more for insurance than people in rural areas.
What type and amount of car insurance you have: The cost of your insurance policy may change depending on your coverage limits, your deductible and the types of auto coverage included in your policy.
Factors that can lower your rate
If your insurance premium is higher than you’d like, there are some ways you can reduce costs.
Get quotes from multiple car insurers
Compare a vehicle’s insurance costs before buying
Shop for safety features, such as a backup camera or collision warning technology
Think of an increased deductible
Lower your coverage on an older vehicle
Take advantage of safe driving discounts
The takeaway meals
When determining what auto insurance coverage is needed to purchase a used or new vehicle, “there are many factors to consider, including the value of your vehicle and your ability to absorb the cost of your vehicle in the event of total loss. it could be due to an accident or if your vehicle is stolen,” says Koopman.
It is also important to keep in mind that regardless of the age of your vehicle, there is a minimum auto insurance coverage required by your state. Optional coverage for both new and used vehicles can be helpful in protecting you from potential financial ruin should an accident occur.
This story was originally on Fortune.com
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