“Why is my car insurance so expensive?” is a question that has definitely weighed down on all our minds at some point.
Car insurance comes with different costs, depending on the state, the coverage policy and a number of other factors. Since insurance costs depend majorly on the amount of risk involved, the greater the chance that you’d need to cash in on your insurance, the more expensive you can expect it to be.
There are plenty of factors that contribute towards your insurance – anything that the insurance company can use to determine how likely you are to get into an accident and end up filing a claim. That said, there are also plenty of ways to cut down on the costs of your auto insurance.
In our research, we considered all the factors that contribute towards insurance rates and how much of a role they have to play. Let’s look at what these are, as well as how you can reduce the total amount you have to pay in insurance as well.
How Much Does Car Insurance Cost?
According to Quadrant Information Services, in 2021, the average cost of car insurance in the United States was around $1,674 per year for full coverage. This is about $139.5 per month, with the minimum coverage starting at around $565 annually.
These rates are for drivers with clean records, so you can assume that the numbers will only go up when we start talking about drivers with questionable driving records or reckless lifestyles.
Factors That Contribute Towards Your Auto Insurance Rates
Car insurance is a mandatory requirement by state for most drivers, but the actual price you pay for it may be different for everyone.
Insurance companies set different rates for every driver depending on how likely they think the driver is to make a claim, as well as how expensive the claim itself is going to be. Of course, while there’s no way to know for certain, insurers take into consideration a number of factors that are likely to contribute, and set their rates accordingly.
The Insurance Company
Though it may seem pretty obvious, insurance rates fluctuate very dramatically and no two insurance companies offer the same rate. Some companies are generally more expensive than others – whether that’s because of their higher quality of service or greater reliability, etc. If you’ve been getting coverage from a company that offers much higher rates than the average, then it’s no surprise that your car insurance is pretty expensive. You might even be paying more than you really need to be.
In fact, from the top 10 insurers across the nation, the average price of insurance for about six months of coverage is approximately $438, when we’re talking about a good driver. But average values are greatly affected by extreme values on either end.
So, if the average price is $438, a good driver may be paying this amount in one state, but they might be paying $300 in one state, and up to $600 in another. That’s an almost 50% difference!
If you think your car insurance is way too expensive, take a look at the coverage policy and compare it to others. The insurance company you may be contracted with might be on the pricier end in comparison to others.
Most often, younger drivers end up paying much more in auto insurance than older drivers. In fact, age is one of the biggest factors that affect how high your premium rates are likely to be. Auto insurers use data to find that younger drivers (especially those in their early 20s), teens and the elderly are much more likely to get into accidents than drivers who fall in the middle of these two age brackets.
Younger drivers often have less driving experience, which makes them more likely to get into accidents while elderly ones may simply be less agile and slower at thinking than they used to be. Either way, they pose a greater risk of accident.
With a greater risk of accident comes a greater likelihood of claims, and thus, insurance companies charge higher premiums to compensate. In fact, younger people were found to pay about 4.5 times more expensive insurance rates than for drivers who were in their mid-30s.
However, sometimes this may actually not be an issue. For example, in Hawaii, the state regulations ban using age as a deciding factor in auto insurance rates, so younger drivers may actually pay the same rates as older ones.
On top of that, if a driver is a teen and has good grades at school, they may even be eligible for a good student discount, which usually lasts up until they turn 25.
Another factor that plays a role in deciding the rates you pay in insurance is gender. Younger men are much more likely to pay for car insurance than for younger women. In fact, a 20 year old man would probably pay about 16% more in insurance than a woman from the same age group.
This is likely because younger men tend to engage in riskier driving behavior than women, which results in a greater likelihood of being involved in an accident – and for that accident to be a serious one. Serious accidents result in larger claims, which is a risk for the insurance company, and thus will result in higher insurance rates.
Again, like age, some states do not allow companies to use gender as a deciding factor. Hawaii, California, Massachusetts, Michigan, Montana, Pennsylvania and North Carolina are some of the states where gender is not part of your insurance coverage considerations.
Though younger men will pay more than women of their age, this difference tends to even out over time. In fact, older women end up paying slightly more than men of their age group, though it is only by a few dollars per month, and the difference is not a significant one.
Where You Live
As you could’ve guessed, insurance rates also vary wildly across the United States. Residents in more expensive states will likely be paying more in insurance than residents in less expensive states. For example, a resident in Michigan may be paying six times more for insurance than residents in Maine.
Within a state, there are plenty of things that can affect insurance rates. For example, minimum coverage amounts may be established by state and differ across each one. A greater number of uninsured drivers within the state may also result in higher insurance rates. With more uninsured drivers, the risk of accident doesn’t change, but the likelihood that the insurance company will have to be the one to cover the cost in case an accident does happen, does go up. This results in greater insurance rates.
How well maintained the roads are can also affect insurance since better roads will lead to less accidents.
The cost of insurance may also vary within the same city as well, not just state. If you live in an area where greater incidents of car theft are reported, or the roads are narrow and accidents are frequent, you may end up paying a lot more than you would have if you lived in a less accident or theft-prone area.
Your Driving Record
Understandably, your past driving record has a major role to play in how much coverage your insurer offers you as well as how much you have to pay for it. Drivers who have recent traffic violations or recently got into an accident will have to pay much higher rates for car insurance than drivers who have clean records.
In fact, adult drivers who were recently involved in an accident where they were at fault had to pay about 42% more for auto insurance than drivers who had not been involved in accidents. That is a very significant number!
The reason behind this major discrepancy in rates is that based on their recent behavior, it is safe for insurers to assume that a similar event (an accident or violation) may occur again in the future, and the driver will file a claim.
Drivers who have been convicted for major traffic violations in the past – such as DUIs – may find that they have to pay higher rates for insurance because they have to get SR-22 insurance. SR-22 insurance is a ‘certificate of financial responsibility’ that ensures that the driver in question has the minimum required auto insurance, and is only needed if the state or court instructs you to get one.
Sometimes, after a major violation, a driver may find their license suspended and will need the insurer to file an SR-22 on their behalf if they want to reinstate their license and get back to driving.
Because drivers with such records (called ‘high-risk drivers’) are potentially repeat offenders, insurance companies have to charge higher rates to reduce the risk.
The severity of the violation is also taken into account. For example, the annual premium for drivers who were convicted of a DUI can go up to $1,400 per year, as compared to around $400 for a speeding ticket. Accidents caused by high-risk drivers will likely be their fault, and the insurance company will have to manage the damage of the driver’s vehicle as well as any other object that took damage.
As such, insurance rates for such drivers are significantly high.
Insurers will also look at what kind of car you’re driving and insure when deciding what rates to set. Some cars are built so that they keep you safer during an accident than others, which can result in lower rates. On the other hand, cars that are fast and powerful may encourage reckless driving behavior, and this may cause rates to go up.
Bigger and safer cars like minivans and smaller SUVs were found to have reasonably affordable insurance in comparison to others. Smaller cars actually have very high rates, most likely because smaller cars are likely to sustain more damage if they are involved in a crash. This will bring up the likelihood of large claims, thus creating risk.
The price and availability of parts, the cost of labor involved in fixing a damaged car as well as the safety features in the vehicle itself – all of these things are taken into consideration when setting rates.
Cars that are newer, faster, more expensive and smaller are most likely to have higher insurance rates than others.
Your credit score is used in almost every aspect of your life – from large loans to your utility bills to credit cards, and it is also sometimes used in car insurance. Companies sometimes take this into consideration when setting your premium rates.
Drivers with no credit history or bad scores are often given higher rates than drivers with better credit. The logic behind it is the same as for other factors: statistically, drivers with bad credit are more likely to file a claim against insurance than those who have good credit.
Again, some states don’t allow the use of credit scores as a factor when deciding on insurance rates. California, Hawaii, Massachusetts, Michigan and Washington are a few of these.
On average, those with poor credit scores are likely to pay twice as much for auto insurance every year than those with good credit scores.
It’s a given that if you are buying more coverage then you’d also be expected to pay more for it. For example, in full coverage policies, drivers will often have to pay around 170% more annually than if they had opted for liability coverage only.
Full coverage policies include comprehensive and collision insurance, which cover the costs of repairing or replacing your vehicle in case of damage once you have paid the out-of-pocket costs (called the deductible). Naturally, if the insurance company is taking care of major costs, they will also need to be paid more in premiums.
Sometimes, insurance history may contribute towards your insurance rates. Drivers who’ve had continuous insurance for a long length of time and had a car in their ownership may have to pay lower rates, whereas any lapses in your insurance history can indicate high-risk behavior and result in higher premium. This is only applicable if you had a car during this time.
Annual mileage can also be a contributing factor. Different companies have different policies around mileage, but higher mileage can result in higher premium rates. This is because the more you drive, the more likely you are to get into an accident.
How to Cut Down on Car Insurance Expenses
Just because car insurance is expensive doesn’t mean it needs to cost you an arm or a leg. There are plenty of ways to reduce your car insurance costs.
Taking Advantage of Multi-Car Discounts
When getting a quote for a single vehicle, you’d find you get a higher rate than if you had asked for a quote for multiple vehicles. Companies want your business, and many will offer what amounts to a ‘bulk rate’ to make you more likely to come to them.
Check the policies to make sure you qualify before you inquire about multi-car discounts. Most often, the discount applies if all the drivers live in the same house. Some companies will also offer discounts if you take their services for other kinds of insurance as well, such as homeowner’s insurance, business or life, etc.
Shop Around For Better Rates
Keep an eye on how much you’re paying in insurance at all times to see when your annual premium has gone up and by how much. If it increases dramatically, you might want to go around shopping for rates elsewhere.
It’s worth it to remember that cheap isn’t always a good thing, and sometimes paying higher rates might even be better in the long run. You also want to check the insurer’s creditworthiness before you sign any contracts, because you want to make sure they will follow through on their promises and pay insurance claims when you need them.
One of the best ways younger drivers can avoid very high premiums is to share policies with family members. This, along with the good student discounts can lower the total payments significantly. Additional training courses may also help younger drivers bring down the rates.
Reduce Coverage Limits
Your coverage is entirely in your hands, since you have total control. As long as you’re above the legal minimum and meeting your insurer’s requirements, you can choose to reduce your limits as much as possible. While this will reduce your overall insurance payments, you will also be responsible for any claims that are not covered by your insurance.
Downsize Your Vehicle
If you already have a large car, you don’t necessarily have to give it up, but if you’re thinking of buying a new one, consider getting a less fancy one. Buying a huge, fancy and powerful car does sound exciting, but the insurance costs do not. On top of the heavy sum you have to pay for the car, you’d also have to pay another large sum for its insurance. A better option is to go for a smaller, safer, lower-cost car that is cheaper to buy and cheaper to insure.
Before you make any vehicle purchases, it is recommended to look at the exact rates for different vehicles so you can make your decision accordingly.
Deductibles are the amount you have to pay out-of-pocket before the insurance company takes over in case an accident, theft or damage occurs. The deductible varies, according to the policy, but generally the rule is: lower deductibles result in higher premiums, and conversely, higher deductibles result in lower premiums.
If you raised your deductible, you’d have to pay less in premium than you would otherwise. This is also beneficial if you end up with multiple smaller claims that would likely push your premium up. The downside is that if an accident or theft does occur, you would have to pay more out-of-pocket than you would have otherwise.
Improve Your Credit Score
As mentioned earlier, credit scores are also taken into consideration when deciding your annual premium. Some companies don’t consider it while others can, but you never know when your credit score will come back to bite you, so it’s best to improve your credit rating and keep it high. This will take some time, but it is best to make the effort than to not do it at all.
Getting Discounts for Safety Features
You can also avail discounts if you install any features that have the potential of lowering your chances of theft or damage. For example, some insurance companies offer discounts if you install anti-theft systems in your vehicles.
Your insurance company would tell you which systems and which devices they offer discounts on, but installing these devices would result in discounts and you would have to pay less in premium than otherwise.
However, these systems and devices are also very costly on their own, so before you install them, you might want to consider if the cost of the device will give you enough savings to be worth the expenses and the trouble of installing it.
Sometimes, usage-based insurance policies are also available. If you’re a safe driver and have lower mileage, you might be able to sign up for such a policy. In this, your insurer tracks your driving and offers discounts depending on how much, when and how well you drive. Often, drivers with lower mileages can save money by opting for such programs.
The price of insurance is probably not going to fall, and if you want to save your money, you’d have to understand why you’re paying as much in insurance as you are, and how you can reduce these costs.
If you look around carefully, you’re sure to find the best car insurance company for you that fits your coverage needs as well as your budget.
About THE AUTHOR
I've spent many years selling cars, working with auto detailers, mechanics, dealership service teams, quoting and researching car insurance, modding my own cars, and much more.Read More About Charles Redding