Car Insurance and Record New Car Prices

A client called me last week to add a new car to their car insurance policy, bringing the total number of vehicles on the policy to three. I added the car to the policy, then emailed them the ID card for the new car along with the new annual rate for their policy. They were a little surprised at the rate and wanted to know why it increased as much as it did with the new car. I reviewed their rate with my other carriers and verified the new rate was in-line with them. The cost of their new vehicle is the biggest factor that impacted their new rate.

The average cost of a new car has hit an all-time high according a New York Times article. New car loans keep getting longer as does the average monthly payment due to higher new car prices. I first wrote on this three years ago (see and felt it time to address the changes since 2013. Let’s look at some statistics:

  • The average cost of a new car is about $34,000 according to Kelley Blue Book
  • This represent an increase of almost $3,000 since 2013
  • The average amount financed on a new vehicle is $28,711 resulting in an average monthly payment of $485
  • New car loans are now average 67 months
  • Car loans in the 73 to 84 month range comprise 29.5% of all car loans

I believe this has three implications for car insurance including rates, the type of coverage, and limits of coverage car owners should consider before buying a new car or truck.

Car Rates: Car insurance rates continue to climb in Texas and across the country. The U.S. average annual cost in 2014 was $907.38 up from $841.23 in 2013. Closer to home, the average annual rate for Houston was $2,211.62 in 2015. Car rates should continue to rise as car cost rise.

Coverage Type: I believe GAP coverage is an important option to have on your car insurance policy. GAP coverage is designed to pay off the loan balance when the amount owed on the car is more than its value and the car is totaled in an accident. I recommend it because new cars lose up to 19% of their value in the first year of ownership, up to 46% in three years, and up to 63% when the car is five years old.

I also suggest comparing the cost of adding GAP coverage to your car policy versus getting it from the dealer. It usually cost much less from your car insurance company than what the finance manager offers.

Coverage Limits: The minimum required liability limits on a Texas car insurance policy are 30 / 60 / 25. The 25 represents $25,000 for property damage which is about $9,000 less than the average new car cost. I believe car owners should carry higher property damage limits on their liability coverage (this pays to fix or total the car you hit) and the uninsured / under insured limits (this pays to repair or total your car if someone hits you and does not have or have enough car insurance coverage).

I believe new car cost will continue to rise due to inflation, increased use of technology for autonomous and semi-autonomous cars, and higher fuel economy standards go into effect in 2025. These factors combined will add at least $7,000 and $13,000 in cost per vehicle through 2030 with car insurance rates growing along a parallel path. To help control what you pay for car insurance, keep your credit good, avoid accidents and tickets, and compare rates. Share your questions and recommendations with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!

Evie Wise
Evie Wise


Evie Wise
Evie Wise

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