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Used car insurance: What you need to know to save money

Yahoo Personal Finance· Getty Images
5 min read

If you’re in the market for a car that has a few miles on it, you might be wondering about used car insurance. While the insurance you get for used cars is the same as new car insurance, there can be key differences both in costs and the types of coverage you might purchase.

Let’s take a look at how insurance premiums can differ for used versus new cars and what you should consider before you get a new insurer or add a used vehicle to your existing policy.

Used car insurance is auto insurance coverage you get for a car that isn’t purchased as a new vehicle.

While some choices about used car insurance are up to you, keep in mind that if you finance or lease your used car, the lender can require comprehensive insurance or other types of coverage.

If you guessed that a used vehicle costs less to insure than a new car, you’re not wrong. This is because the value of used cars is usually lower than the latest models, but your insurance premium and car insurance rates can also vary depending on:

The average cost of a liability policy with Progressive ranges from $81-$146 per month, while Liberty Mutual says you’ll pay anywhere from $80-$211 per month. Where you’ll typically save money is on the cost of comprehensive and collision coverage on used cars.

These types of coverage pay for the damage and repair to a vehicle according to its actual cash value, or the amount you could sell the car for today, which accounts for the vehicle’s depreciation.

Almost every state requires drivers to carry liability coverage, including bodily injury liability and property damage liability. This coverage pays for car repairs, property damage, and medical bills for the other driver and their passengers up to the liability limits if you were to get into an accident.

Read more: Minimum car insurance requirements in all 50 states

Beyond your state’s minimum liability insurance requirements, you may want to consider the following types of insurance coverage.

1. Collision insurance

Collision insurance covers the cost of fixing your used car in the event of an accident.

2. Comprehensive insurance

Comprehensive coverage pays for damage that isn’t the result of a motor vehicle accident, such as vandalism, theft, and natural disasters.

3. Uninsured or underinsured motorist insurance

Nearly half of U.S. states mandate uninsured or underinsured motorist coverage, which pays for repairs and medical bills in an accident where the other driver doesn’t have liability coverage or has insufficient coverage.

4. Personal injury protection insurance (PIP)

In states with no-fault insurance laws, personal injury protection insurance (PIP) covers medical expenses for you and your passengers after an accident. This coverage can also be helpful in paying lost wages, childcare expenses, and funeral costs.

Other types of insurance you may want to consider include medical payments coverage (MedPay), which is required in Maine, New Hampshire, and Pennsylvania, and gap insurance if you owe more on your used car loan than the vehicle’s actual cash value.

Read more: How to find the best, cheapest car insurance in 2024

If you’re buying a used car from a dealership, you’ll be required to provide proof of insurance before you drive off the lot. While you might not technically need insurance up-front if you’re buying from a private seller, it’s still illegal to drive without your state’s minimum liability coverage.

But buying a new car or a new-to-you-car typically comes with a 30-day grace period from most car insurance companies, where you’ll be covered until you have the chance to contact an insurance agent or shop online for car insurance quotes to secure better auto insurance rates.

Note that there are scenarios in which full coverage car insurance on a used car is not worth the money you’ll pay in insurance premiums. For instance, if your deductible is $1,000 and your used Honda or Toyota is worth $2,000 or less, your premiums may add up to more than you’d pay out of pocket to fix your car.

In this case, where the cash value of your car is exceptionally low, you may want to contact your insurance provider to update your policy to the minimum coverage.

We usually associate gap insurance with new cars, but this type of insurance coverage can be advisable for older cars too. Because gap insurance is designed to cover the “gap” between what you owe on a car and the vehicle’s actual cash value, adding gap coverage to your car insurance policy might be advisable if:

  • Your used car is three years old or less. Some cars are still experiencing significant depreciation even after the first two years of ownership.

  • Your down payment was 20% or less. If your car loan absorbed most of the sticker shock, gap insurance may be required by your lender.

  • Your car loan is 48 months or longer. Long loans keep monthly payments lower, but they are considered riskier to finance and may require gap insurance.

  • You drive a lot. If you plan to rack up the mileage, your car will depreciate much quicker.

Remember gap insurance isn’t designed to be a permanent coverage and can be dropped once you’ve paid down your loan. The exception to this rule is antique cars, which can appreciate in value depending on their age and should be covered instead under classic car insurance.