Why Is Car Insurance So Expensive?
It’s hard to lower your car insurance rates because so many factors affect your premiums — and because you can’t control every single variable.
State laws, your age, the crime rate in your neighborhood, how much you drive, the make and model of your vehicle — these and many other factors directly impact the cost of your car insurance coverage.
To lower your insurance costs, you have to control the variables you can control. Then you have to shop around for the lowest rates and the best discounts in your area.
Why Is My Car Insurance So High?
The average cost of car insurance in the United States is about $150 a month. This cost includes liability coverage, in case you strike another car, as well as protections for your own vehicle.
If you’re paying a lot more than $150 a month to insure one car — or if you just feel like your insurance bill is too high — you can probably blame one or more of the following factors:
- State Laws: Each state has different car insurance rules. States with the highest minimum coverage requirements normally have the highest premiums.
- Your Driving Record: A couple of wrecks or a moving violation within the past three years will inflate your auto insurance rates because insurers fear payouts more than just about anything else in the world.
- Your Age & Gender: Drivers younger than 25 and (older than 75 or so) pay higher rates because statistics show these drivers have more wrecks. In most states, single young men pay higher premiums than young women.
- Your Coverage Choices: If your policy includes extras like roadside assistance or rental car allowances, your premiums will be higher.
- Your Credit Score: In most states underwriters look at your credit score and charge higher premiums to policyholders with shakier credit histories. Why? Because statistics show a correlation between bad credit and the likelihood of filing an auto claim.
- On-Board Devices: More and more insurers want actual data about your driving habits. They can collect this through your smartphone or through on-board telematics devices. If you speed, brake suddenly, or take curves at high rates of speed, your premiums could be higher. (Safer driving can lower your premiums some.)
- Your Car: More expensive cars cost more to insure, and cars with modern safety features cost less.
- Your Neighborhood Data: Do you know your ZIP code’s crime rate or the condition of its roads compared to other neighborhoods? Your auto insurer does, and it’ll charge premiums accordingly.
- Distance of Travel: Someone who commutes a hundred miles a day pays higher premiums than someone who drives 100 miles a week.
A Closer Look at Car Insurance Premium Factors
Now, I’m thinking you probably want to lower your car insurance premiums. Otherwise, you wouldn’t find and read an article about car insurance rates.
Knowing why your rates are so high is step one. But now it’s time to take some action to lower rates where possible:
Short of moving to another state or petitioning your lawmakers for insurance reform, there’s not much you can do to lower your car insurance rates in this category.
Just know that your state insurance requirements create the context for your relationship with your auto insurer.
For example, car insurance in Michigan costs the most because state law guarantees car crash victims a lifetime of medical care if needed. Who pays for this? Insurance companies. And they pass along the cost to their policyholders.
States that require drivers to buy uninsured/underinsured motorist coverage also have above-average car insurance costs.
What You Can Do:
- Be aware of your state’s insurance regulations and appeal to your insurance commissioner or state representative if you think your state’s laws should be improved.
Your Driving History
We all make mistakes. One speeding ticket or a fender bender doesn’t make you a terrible driver and a hazard to other drivers on the road.
But unless your insurer has an accident forgiveness program, as many do, one accident or one moving violation could increase your auto insurance premiums.
Now, actual bad decisions like a hit-and-run or a DUI should and will cost you. But if you’re an all-around good driver, your premiums will eventually reflect your habits and decrease, even if you have an at-fault accident on your record.
Depending on your state, you’ll have to wait two or three years for the accident to age off your driving history. Meanwhile, you can continue to drive defensively and avoid further mishaps.
What You Can Do:
- Practice safe driving and wait for recent wrecks or moving violations to age off your driving record.
Your Age & Gender & Marital Status
Age matters a lot to car insurers because statistics tell the truth. Even if you defy the norms and are the safest 17-year-old to ever sit behind a steering wheel, your insurance company will remain skeptical.
Younger drivers, who are also male, cost more to insure than female drivers of the same age. But males who are married tend to pay lower premiums compared to their single male peers.
What You Can Do:
- Be patient and drive safely. Parents of teens can often keep premiums lower by declining to assign the teen as a primary driver on a vehicle. Teens and other younger drivers can take driver’s training or defensive driving courses to lower premiums. If you get married, tell your insurance agent!
Your Insurance Coverage Choices
States set minimum insurance policy requirements that motorists must maintain. Auto insurance companies shouldn’t sell you coverage unless it meets your state’s requirements.
But you may want more insurance than your state requires. In fact, most drivers should carry full coverage, especially when they owe money on a car loan.
Why? Because you don’t want to owe money on a car you can’t drive. Most lenders require drivers to buy full coverage, which includes comprehensive and collision coverages.
And, your state’s minimum liability protections may not provide enough coverage for you, especially if you own property or other valuable assets. A judge could seize your assets if you were sued after a wreck if your liability coverage couldn’t pay.
Extras like roadside assistance, rental car allowances, and personal injury protection or medical payments could add to your premiums unnecessarily.
What You Can Do:
- Learn your state’s limit and assess your own insurance needs. Don’t buy more coverage than you need, but don’t skimp on liability coverage, either. An umbrella policy could provide even more liability if your auto policy doesn’t provide enough.
Your Credit Score
This issue has been controversial because your credit score does not relate directly to your driving habits. Several states, including California and Hawaii, have barred insurers from considering your credit score as a factor in premiums.
But most states still let insurance companies set premiums based, in part, on your credit history. Underwriters can show you data proving drivers with lower credit scores file more insurance claims. It’s hard to argue with the numbers.
What You Can Do:
- Pay your bills on time and look for other ways to improve your credit score. And, tell your insurance agent if your score increases. Ask your agent to run your numbers again, based on your new credit score, before renewing your policy.
Traditionally, insurers extrapolated your likelihood of filing a claim by analyzing data — your driving record, your credit score, age, and so on.
Now, more and more insurers can see real data from your actual driving habits. They gather the data through smartphone apps or through on-board telematics devices plugged into your vehicle’s diagnostic port.
You have to consent to share this data, but most of the leading insurers offer a nice discount as an incentive for agreeing. Once this data collection becomes part of life, drivers tend to stop thinking about it and just drive like they always drive.
But the devices will transmit data every time you drive. They’ll compare your speed to posted speed limits, and they will measure how often you brake hard (which can indicate reckless driving). Some devices can sense if you take a sharp curve too quickly.
Your driving data could lower your premiums or increase them. It depends on your driving habits.
What You Can Do:
- Start using telematics devices if you’re a calm driver; avoid them if you’re a rough driver.
Your Type of Car
More expensive cars require higher comprehensive and collision premiums because more valuable cars cost more to replace or repair. Based on this logic, you could drive an older car and save on car insurance.
But not so fast: More valuable cars are often safer, which lowers your liability coverage.
Back-up cameras, lane sensors, better braking systems, and better lines of sight can reduce the likelihood of a dangerous collision and therefore lower your auto premiums.
Somewhere there’s a sweet spot — a car old enough to lower comprehensive and collision coverages while safe enough to lower liability premiums.
Most of us don’t choose a car based on the cost of car insurance, but if you do, remember this: sports cars and bigger vehicles cost more to insure than compact cars and coupes with smaller engines.
What You Can Do:
- Before buying a car, ask your insurance agent to quote you different premiums for different types of car, trim packages, and engine specifications.
Your Neighborhood Data
We’ve already covered the importance of state insurance laws. But within your state, car insurance providers charge different premiums in different ZIP codes.
Insurance companies gather a ton of data. They analyze traffic patterns, car break-ins and thefts, and road construction projects. This information influences your likelihood of having a wreck or suffering a property crime — either of which would generate a claim.
If you live in an area with congested roads and high crime, your premiums could increase, reflecting this higher risk. If you live in a rural area with low crime and no traffic, you could see lower premiums.
What You Can Do:
- Next time you move to a new city or even to a different apartment in your current city, ask your insurance agent to run a sample quote based on your new address.
Your Distance of Travel
High mileage drivers pay higher premiums because they spend more time behind the wheel. More time driving creates more opportunities for wrecks.
Auto insurers ask about your commute when they sell you coverage. More and more companies now rely on telematics devices to measure your mileage, too.
Pay-by-the-mile insurance calculates part of your premium based on your miles driven.
What You Can Do:
- If you drive infrequently, look into pay-by-the-mile insurance. If you drive a lot, this kind of coverage will cost you more.
Shopping Around Directs You to Savings
Travel distances, crime rates, credit scores, driving records, car trim packages — a wide variety of factors can create high insurance rates.
There’s another variable we haven’t mentioned yet: Free market forces.
As with any other product, car insurance rates respond to competition in the marketplace. It’s not a simple supply-and-demand model; there’s no scarcity of auto insurance policies, after all.
But insurers do know that lowering premiums will attract more policyholders. Having more policyholders spreads the risk across more drivers and can help keep premiums down while increasing profit.
So car insurance companies will lower auto coverage rates — seemingly at random, sometimes — to sell more policies.
What does this mean to you? You could access lower rates simply by shopping at the right time and getting free quotes from a variety of car insurance providers.
- Take advantage of E-sign, Safe Driver, Pay-in-full, Multi-Car and other Discounts
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Most shoppers still check with one, or maybe two, insurers, and then go with the cheapest car insurance rate. Getting quotes from four or five insurers will give you a better chance of saving money.
Since most policies expire every six months, you have two prompts a year to shop around for a better rate by getting several car insurance quotes.
Discounts Make the Cost of Car Insurance Easier to Manage
If you believe the ads on TV and online, paying less for car insurance depends on discounts. This isn’t true.
Discounts can help you save money, but you shouldn’t depend on them for lower auto insurance rates. Instead, you should see discounts as a bonus that can lower your premiums even more.
Here’s why: If you save 3 percent on a multi-policy discount, that’s nice — but not if you’re already paying 30 percent more than you would pay with another insurer or if you had a good driving record.
So focus on safe driving, getting the right level of coverage, improving your credit score, and shopping around for the best base premiums.
Then, if you can save even more by getting discounts, go for it. Common auto insurance discounts include:
- Multi-policy (multi-line)
- Early renewal
- Annual payment
- Auto club
Driving Habit Discounts
- Safe driver
- Low mileage
- Driver training course
- Good grades
- New car
- Safety features
When you combine some of these discounts, you can achieve some real savings. But once again, don’t shop based on available discounts; shop first for the lowest base premium.
So Why Is My Car Insurance So High?
Many factors that drive up your car insurance rates are out of your control — state laws, your age and gender, and your local road conditions.
But here’s a review of the variables you can control to lower your rates now or in the future:
Your car insurance costs too much if:
- You Have Too Much Insurance Coverage: Buying more coverage than you need always drives up prices unnecessarily; not having enough coverage can cost you if you file a claim.
- You Have a Rough Driving Record: High-risk drivers pay high premiums at any insurer. So, develop better driving habits and wait for your old mistakes to age off your state DMV record. If your at-fault accident was more than three years ago, it should disappear from your driving history in most states.
- Your Credit Score Suffers: Pay your bills on time, monitor your credit usage, and avoid hard credit checks. Then ask your insurance agent to run the numbers again after you’ve achieved a good credit score.
- You Need a New Car: Most older cars lack modern safety features. When you’re ready for an upgrade, check with your agent to find out how trim packages and engine specs for the model you’re considering will affect premiums.
- You Haven’t Shopped Around: Brand loyalty can lead to savings, but if another quality insurer can save you 20 or 30 percent, why not jump ship? Only shopping around for free auto insurance quotes can let you know about lower rates.
- You Haven’t Tapped Into Discounts: Ask your current or new insurer about auto insurance discounts you qualify for. Many car insurance companies don’t volunteer this information unless asked.
- You’re a Young Driver: Drive carefully and ask your auto insurer about defensive driving or driver’s training courses, which could lower your premiums. This can help, but ultimately you’ll just have to wait for your driving experience to earn you lower premiums. State Farm has a special program for younger drivers, which could save you money.
I hope this post has helped explain why your car insurance costs so much. Happy shopping and save driving!