Costs Might Surprise 'Clunker' Sellers: Higher Insurance Rates Might Be Offset By Lower Fuel Costs

Aug. 5--The government's "Cash for Clunkers" program has set off a car-buying frenzy that has eased sticker shock on the buying end. But for some, there's been an unpleasant surprise: a higher auto-insurance rate.

Insuring a new car costs more than insuring an old one; one reason is many folks don't buy top-of-the-line coverage for a clunker.

For some new-car buyers, the increase could be minimal; for others, it could be $500 or more a year.

But in Ohio, where auto-insurance rates are moderate, the higher insurance costs seem to be offset by lower fuel costs. That's made it easier for some who've taken advantage of the "Cash for Clunkers" program to justify putting a new car in their driveway.

This was the case for Richard and Sheryll Hunt of Pickerington, who traded in their 1996 Mercury Villager with 167,000 miles for a new Mercury Mariner.

"We loved that car and could have gotten another four or five years out of it," Richard Hunt said.

But the $4,500 federal stimulus and an additional $3,500 manufacturer's discount made the deal too good to pass up.

"It was a once-in-a-lifetime opportunity," he said.

The Hunts' insurance costs went up only $45 a year.

However, unlike many owners of older vehicles, the Hunts had collision coverage on their Villager.

Most "Cash for Clunkers" participants will see a bigger insurance jump.

"You're going from covering a car worth maybe $6,000 to one worth $19,000, so in most cases, it will go up," said Joel Brown, State Auto Insurance's vice president of personal insurance.

"And on most older vehicles, people won't be carrying full coverage. They've deleted comprehensive or collision coverage, and you want this on a newer vehicle," he said.

Brown said coverage for someone who traded in a 1999 Dodge Ram pickup truck for a new Dodge Caliber compact hatchback would jump by $254 a year: from $816 to $1,070.

The increase from a 1999 Ford F-Series pickup truck to a new Ford Focus compact would be $600: from $728 to $1,328.

Insurance.com compared the insurance rates that Ohioans would pay on a 1999 Ford Explorer sport-utility vehicle with the cost to cover seven new and more fuel-efficient cars.

The rate for a new Hyundai Sonata was $143 less than the $1,264 cost of insuring the Explorer. However, the Explorer's cost was an average of $573 less than that of insuring a Honda Civic, Toyota Corolla, Kia Spectra, Ford Focus, Chevy Cobalt or Scion tC. The rates were based on a "single vehicle, a single driver with a clean record, a plain-vanilla profile," said Insurance.com Vice President Sam Belden.

These increases seemed high to Larry Thursby, Nationwide Insurance vice president of personal automobile product and pricing.

"We wouldn't expect to see that much of an increase," he said, adding that multiple-car discounts and bundling auto and home insurance can reduce the cost.

The average cost of auto insurance in Ohio was $654 a year in 2006, the most recent year for which the National Association of Insurance Commissioners has complete data.

Nationwide offers a 20 percent discount for new cars. "We've seen that people are more careful with new cars, and that's reflected in our loss experiences," Thursby said. "And new cars have safety features, such as anti-lock brakes and air bags, that reduce the frequency and cost of accidents."