How are insurance premiums calculated?

Annually, the Insurance Institute for Highway Safety and its sister organization the Highway Loss Data Institute, analyze the actual insurance losses associated with the most popular vehicle makes and models. The rankings of these two organizations give consumers an opportunity to gauge how their vehicle choices will affect their auto premiums. Keep in mind that many makes and models popular with younger drivers may carry a higher premium. Annually, Insure.com prepares a list of the most- and least- expensive cars to insure.

Which vehicles are likely to have the lowest insurance premiums?

Today's version of a family car—a large sedan, mid-size SUV or minivan. These cars tend to be driven by people who are less likely to speed or drive recklessly.

How to keep premiums down?

Bigger isn't always better when it comes to lowering premiums. Some of the super-size models could actually increase the cost of your insurance. Why would a luxury SUV whose typical driver is both affluent and conservative be a risk? Two words: theft magnet. Many factors affect the rates for collision and comprehensive insurance and theft is one of them. Another factor is what happens when two cars collide. Larger vehicles are routinely linked to higher-dollar damage to other cars.

Guide to Buying Insurance For a New Car

By Justin Yoshizawa and the Mercury Team

Whether you’re upgrading your ride or getting car insurance for the first time, it’s important to understand how your car choice affects your insurance premium. In this guide, we’ll break down how buying a car impacts insurance costs, which vehicles tend to have the lowest rates, and how to save money on your policy.

How Does Buying a Car Affect Insurance Rates?

The type of car you buy, whether it’s new or used, directly impacts your insurance costs. In general, new vehicles typically cost more to insure because of their higher value and repair/replacement costs. Plus, if you’re leasing or financing a new car, your lender will likely require you to carry full coverage car insurance, which can raise your premium.

On the other hand, used cars usually have lower premiums since they’re worth less and are typically cheaper to repair. Just keep in mind that some used cars, like classic cars or high-end models, can still come with high insurance rates.

Insurers also consider important vehicle-specific factors:

Make and model: Luxury cars, sports cars, or vehicles with costly parts tend to have higher premiums, while economy cars generally cost less to insure.
Safety ratings: Cars with top safety scores or advanced safety features (e.g., ADAS) may earn auto insurance discounts. However, the cost of these features can sometimes offset the savings.
Theft risk: Models with higher theft rates usually have higher premiums.

To help evaluate risk, insurers rely on data from trusted sources like the Insurance Institute for Highway Safety (IIHS) and Highway Loss Data Institute (HLDI). These organizations track real-world claims and safety performance to guide insurance pricing.

How Are Car Insurance Premiums Calculated?

Insurance companies use a mix of real-world data, vehicle specifics, and personal factors to determine your premium.

As mentioned previously, insurers lean heavily on data from the HDLI and IIHS.

HDLI tracks how often certain vehicles are involved in accidents, how frequently they’re stolen, and how much those claims cost insurance companies. This helps insurers understand which vehicles are more likely to lead to expensive payouts.
IIHS crash-tests vehicles to measure how well they protect passengers. Cars with poor scores or outdated safety features are seen as higher risk, leading to higher premiums. On the flip side, vehicles with great safety ratings and affordable repair costs are often seen as safer bets, and that can lead to lower insurance rates.

Insurers also consider other factors, such as the vehicle’s popularity (which affects repair part availability), the cost of repair, and whether it includes ADAS features like automatic emergency braking or lane assist.

Beyond the car itself, your age, driving history, ZIP code, and coverage needs all play a role. For instance, younger drivers often pay more because they’re statistically more likely to be involved in accidents. According to the IIHS and HDLI, teen drivers (ages 16 to 19) are nearly three times more likely to be in a deadly crash than drivers over 20.

Types of Cars with the Lowest Insurance Rates

Understanding insurance rates by car type can help you choose a vehicle that’s easier on your budget. Here are some of the cheapest cars to insure:

Midsize SUVS

Cars like the Subaru Forester, Mazda CX-5, and Honda CR-V often rank among the most affordable SUVs to insure. These models perform well in IIHS crash tests, include modern safety features, and don’t encourage risky driving. Their solid safety records and reasonable repair costs make them a smart pick for budget-conscious drivers.

Minivans

Minivans are also generally affordable to insure. They’re built for families, not fast driving, and are typically packed with safety features. Models like the Honda Odyssey and Toyota Sienna have strong safety records and are driven conservatively, which lowers the risk for insurance companies.

Sedans

Popular sedans such as the Toyota Camry, Mazda 3, and Hyundai Elantra also keep premiums low. These cars come with high safety ratings, cost less to repair, and have widely available, affordable replacement parts.

“Some vehicles just carry less risk, and it shows in their insurance rates,” says Justin Yoshizawa, Director, Product Management, State. “Safe, reliable models like midsize SUVs or sedans tend to cost less to insure, and they’re usually more affordable to repair, too.”

Tips to Lower Your Car Insurance Premium

Wondering how to lower my car insurance without sacrificing coverage? It starts with making smart choices before and after you buy your vehicle. Here are a few tried-and-true tips that can help reduce your premium:

Choose a Safe, Low-Theft Vehicle

Insurers love vehicles that are safe and unlikely to be stolen. Cars with strong safety ratings and low theft risk—like the Subaru Outback, Volvo XC40, or Mazda CX-5—typically cost less to insure. These models consistently perform well in IIHS crash tests and show up less often in theft claims.

Skip Oversized or Luxury Models

Oversized trucks, luxury sedans, and high-performance sports cars often mean higher insurance bills. They cost more to repair and are linked to higher claim payouts. If you’re focused on savings, stick with practical, easy-to-repair vehicles.

Compare Rates Before You Buy

Don’t wait until after you’ve signed for the car to think about insurance. Get quotes for multiple models you’re considering because rates can vary more than you might expect. A little research upfront can save you hundreds later.

Ask About Discounts

Many insurers offer auto insurance discounts for features like adaptive cruise control, anti-lock brakes, and anti-theft systems. You can also save by bundling policies, maintaining a clean driving record, or even getting good grades if you’re a student.

Other Factors That Affect Car Insurance Rates

Take a look at some other factors that can influence your insurance premium.

Driving History

Your driving record plays a huge role. If you’ve had accidents, speeding tickets, or other violations in the past few years, expect to pay more. On the flip side, a clean record can help you score better rates.

Where You Live and How You Drive

Insurance costs vary by location. If you live in a busy city with lots of traffic, theft, or vandalism, your rate may be higher than someone in a quieter area. Also, how you use your car matters. Long daily commutes or business use typically mean higher premiums than weekend-only driving.

Credit Score (in Some States)

In many states, your credit score can affect your rate. People with higher credit scores tend to file fewer claims. So if your score is low, your insurance might cost more, even if you have a perfect driving record.

Vehicle Style and Engine Type

Sports cars, convertibles, and vehicles with powerful engines usually cost more to insure. Why? They’re more expensive to fix, more likely to be stolen, and often driven faster. A simple, hardtop sedan or SUV with a standard engine usually costs less to cover.

FAQs

Here are some frequently asked questions about car insurance when buying a car:

Should I get insurance before buying a car?

Yes, you need insurance before you can legally drive your new car off the lot. Most dealerships won’t let you take the car home without proof of coverage. If you already have a policy, it may offer a short grace period for new vehicles, but it’s always best to confirm with your insurer before buying.

Is insurance cheaper for new or used cars?

In most cases, used cars are cheaper to insure than new ones. That’s because they have a lower market value and usually cost less to repair or replace. However, a new car with advanced safety features may qualify for discounts that offset some of the cost difference.

Does the car you drive affect insurance rates?

Absolutely. The make, model, year, safety features, repair costs, and theft risk of your vehicle all factor into your insurance rate. Safer, more affordable-to-repair vehicles generally cost less to insure than luxury, high-performance, or high-theft-risk cars.

Does the color of the car affect insurance?

No, the color of your car doesn’t affect your insurance rate. Insurers don’t consider color when calculating premiums. They focus on factors like vehicle type, safety ratings, and your driving history.

Final Thoughts on Purchasing Car Insurance for a New Car

Buying a car is a big decision, and the type of vehicle you drive has a major impact on your insurance premium. So, make sure to consider factors like safety ratings, repair costs, and theft risk before you sign on the dotted line.

Need help finding the right cheap car insurance for your new ride? Talk to a Mercury Insurance agent to explore your options and discover potential discounts. We’ll help you build a policy that fits your needs and your budget.

Justin Yoshizawa

Director of Product Management at Mercury Insurance

Justin Yoshizawa is Director of Product Management for Mercury Insurance, overseeing California’s personal lines, including auto, homeowners, landlord, and umbrella. He has led major initiatives such as the rollout of the aligned umbrella product across all Mercury territories and serves as a company spokesperson on auto-related topics. Yoshizawa holds dual Bachelor of Science degrees in Applied Mathematics and Applied Statistics from UC Santa Barbara.