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Do New Cars Have Higher Insurance Premiums?
by
JG Wentworth
•
March 19, 2025
•
5 min
New cars often represent a significant investment for most people. Beyond the sticker price, however, lies another financial consideration that many car buyers overlook until it’s too late: insurance costs. While that shiny new vehicle might be calling your name, understanding how it might impact your insurance premiums can save you from unexpected budget strains down the road.
The Short Answer: Yes, But It’s Complicated
Generally speaking, new cars do tend to command higher insurance premiums than their older counterparts. However, this isn’t a universal rule, and the actual impact on your wallet depends on numerous factors that insurers weigh when calculating your rates.
Why New Cars Usually Cost More to Insure
Replacement Value
The most obvious reason new cars typically cost more to insure is their higher replacement value. Insurance companies calculate premiums based partly on how much they would need to pay if your vehicle were totaled in an accident. A new $35,000 SUV will naturally cost more to replace than the same model that’s five years old and worth $20,000.
Repair Costs
Modern vehicles pack increasingly sophisticated technology into every corner. Advanced driver assistance systems (ADAS), touchscreen infotainment centers, and complex engine management systems make today’s cars safer and more efficient—but also substantially more expensive to repair when things go wrong.
Even minor fender benders that once might have required simple bodywork can now involve recalibrating sensors, replacing cameras, or reprogramming computer modules. These higher repair costs translate directly into higher comprehensive and collision coverage premiums.
Theft Risk
Certain new models—particularly luxury vehicles and those with high-demand parts—may carry higher theft risks, driving up comprehensive coverage costs. However, this factor varies significantly depending on the specific make and model.
See: Does Car Insurance Transfer With Trade-In?
Factors That Might Lower New Car Insurance Costs
While new cars generally cost more to insure, several factors can work in your favor to partially offset those higher premiums:
Safety Features
Modern vehicles typically include safety features that older models lack. Advanced airbag systems, electronic stability control, anti-lock brakes, and collision avoidance technology all reduce the likelihood of accidents and injuries. Insurance companies recognize these benefits by offering discounts for vehicles with these safety features.
Anti-Theft Technology
New cars often come with sophisticated anti-theft systems, from engine immobilizers to GPS tracking capabilities. These features reduce the likelihood of theft and increase recovery rates when thefts do occur, potentially qualifying you for additional insurance discounts.
New Car Discounts
Some insurance providers offer specific discounts for brand-new vehicles, recognizing that they’re less likely to experience mechanical failures that might contribute to accidents.
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The Depreciation Factor
One of the most painful financial aspects of new car ownership is depreciation—the rapid loss of value that occurs the moment you drive off the dealership lot and continues for the first several years of ownership.
This depreciation creates a potential insurance gap for new car owners. If you finance or lease a new vehicle, you might owe more on your loan than the car is actually worth for the first few years. This situation—being “underwater” or having “negative equity”—creates a financial risk that many new car buyers don’t anticipate.
If your new car gets totaled in an accident, standard insurance policies only pay the current market value of the vehicle, not what you still owe on it. This gap could leave you thousands of dollars in debt for a car you no longer have.
To address this risk, many insurance companies offer “gap insurance” specifically for new cars. This coverage pays the difference between your car’s depreciated value and what you still owe on your loan or lease if the vehicle is totaled.
Comparing Models Before You Buy
Insurance costs can vary dramatically between different new car models, even those with similar purchase prices. Sports cars, luxury vehicles, and models with poor safety ratings or high theft rates will generally cost more to insure than family sedans or vehicles with excellent safety records.
Before finalizing your new car purchase, consider getting insurance quotes for multiple vehicles you’re considering. The difference in annual premiums could amount to hundreds or even thousands of dollars over your ownership period.
Strategies to Reduce New Car Insurance Costs
If you’re set on buying new but want to minimize the insurance impact, consider these approaches:
- Opt for safety: Choose models with top safety ratings and advanced safety features.
- Skip unnecessary power: Vehicles with larger engines and higher performance capabilities typically cost more to insure.
- Increase deductibles: Taking on a higher deductible can significantly lower your premium costs, though you’ll pay more out-of-pocket if you have a claim.
- Bundle policies: Combining your auto insurance with homeowners or renters insurance often qualifies you for multi-policy discounts.
- Maintain good credit: In most states, insurance companies use credit-based insurance scores to help determine premiums.
- Shop around: Different insurers weigh factors differently in their pricing algorithms. Getting quotes from multiple companies can reveal surprising variations in premium costs.
The Bottom Line
While new cars generally do carry higher insurance premiums than older vehicles, the difference may be less than you expect after accounting for safety discounts and other factors. The key is understanding the full cost of ownership—including insurance—before making your purchase decision.
By researching insurance costs upfront and implementing smart strategies to reduce your premiums, you can enjoy that new car smell without letting insurance costs drive your budget off course.
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