That ‘new car smell’ can really be intoxicating, but the difference in the insurance premiums for a used car and a new one can do a lot to shake you out of your reverie.
How Are Premiums Calculated?
Insurance premiums are calculated using a complex algorithm of several different probabilities. These probabilities basically use information such as your age, sex, marital status, car model, years on the road and even the color of the vehicle among other things to deduce the likelihood that you will be involved in a collision resulting in a claim.
These statistics are then combined and out of this mix of seemingly unrelated factors, comes your shiny new premium.
How Can Buying a New Car Directly Affect Your Premium?
Because insurance premiums are calculated as a percentage of the price of the vehicle, clearly choosing to buy a new car automatically bumps up your premium, relative to cheaper used options.
It is logical to use the purchase price as the basis to estimate the insurance premium, because the point of buying insurance is to protect your investment in case it is damaged or stolen. Therefore it follows that cars that are more expensive to repair or replace are also more expensive to insure.
Buying a new car is not all bad news for your insurance premiums though. Some features that come with new cars can actually lower your premium because they increase safety of the vehicle and the driver and they can also make it more difficult to be stolen.
Such features include;
> Adjustable head restraints
> Anti-lock brakes
> Daytime running lights
> A built-in immobilizer to prevent car theft
> Car-tracking systems
> Electronic key entry
> Transmission type
Some car models are also more expensive to insure based on the insurance company’s use of statistics to calculate their premiums. So a sports model is likely to have a higher premium, because it is associated with speed, as opposed to a four-door sedan.
Even some colors will hike up your premium. Red cars have been known to attract higher premiums because statistically they are usually the color choice of those who have a need for speed.
When you’re in the market for a new car, it pays to remember that the sticker shock goes way beyond the price of the car itself. Insurance is a necessity that must be factored into the final price equation, so think of the factors that affect your premium before you get too attached the car in the showroom.