What Drives the Cost of New Car Insurance?

Once upon a time, you could actually buy a brand new car for about what you’ll pay these days for full insurance coverage for a new car. Inflation aside, what exactly drives the cost of new car insurance?

Unless you paid cash for your new car, you’re financing it and that means you don’t own it. The lender does and your car is collateral on that loan.  If you bang up the collateral and can’t afford to get it repaired, it’s worth a lot less. If it’s stolen, your lender stands to lose everything. So to cover the risk of total loss, your lender requires that you carry comprehensive and collision insurance, over and above the minimum liability insurance required by your state. That means that about 40% of your insurance premium is going to cover the risk of a damaged or stolen vehicle. Ka-ching!

It costs a lot more to repair today’s cars. If you added up the parts on a $25,000 car, the Alliance of American Insurers estimates the tally would come to $68,000. No wonder, insurance companies often elect to “total” a car that’s been in a severe accident rather than foot the repair bill. Ka-ching!

Anyone who has ever forked over $200 – $300 for a broken headlamp is well aware that even minor fender benders can mean big repair bills. Multipart assemblies and plastic materials used in modern cars can be easily damaged and are sometimes impossible to repair. So instead of pounding out a ding in your fender, the entire unit has to be replaced. Ka-ching!

If you injure someone with your car, the insurance company will have to foot the medical bills, and health care costs have risen right along with everything else. Plus there’s always the chance in our litigious society that the injured party will decide to sue, meaning your insurance company will have to either settle out of court or finance a defense.Ka-ching!

There are plenty of irresponsible people driving around with no insurance, and many more who are underinsured. If one of them hits you, your insurance company pays. Ka-ching!

Your premium also includes the cost of covering the estimated $24 billion the insurance industry loses every year to bogus injuries, fake damage claims, car arson to get out from under hefty payments and other fraudulent practices. Ka-ching! Ka-ching! Ka-ching!

If you’re driving a new car and you’re looking for cheap car insurance, your best bet is to shop around for competitive quotes.


EINSURANCE is a one stop shop for insurance quotes comparison. Our writers, researchers, and industry experts all work together to inform consumers about online insurance marketplace. Whether you’re buying your first car insurance policy or finding health insurance for your families, EINSURANCE always provides latest relevant information to your choices.