Why Is Car Insurance So Expensive?
When it comes to auto insurance policies, not everyone reads small asterisked texts on their policies. Instead, sometimes people end up buying a non-matching policy or overpaying for a policy that they don’t actually need. If you are purchasing a car, you will obviously need to insure it, but you might wonder why is car insurance so expensive in the first place.
In this article, we will explain what factors influence the price and give you the wisdom to buy your own tailored policy that will cover everything and save you some money. Also, to help you make a good financial decision when buying an insurance policy- check our list of best car insurance providers in the US.
What Determines How Much You Pay for Auto Insurance?
Here, we’d like to present the factors that affect car insurance rates.
First and foremost, you need to know that the car insurance costs depend on your age, driving record, credit history, location, coverage options, etc.
Secondly, car insurance premiums are variable expenses, accounting for approximately 2.44% of your annual income. These variables are influenced by some things you can and cannot control. For example, you can change where you live or purchase a cheaper car, but you cannot change your gender, age, driving record, or insurance history. However, you can work toward a good credit and driving record.
Let’s talk in detail about some of the factors that affect insurance prices.
Your age is one of the primary factors that the insurer will consider when calculating your insurance quote. In addition, it reveals much information about you as a driver, such as your driving experience and accident risk.
It’s considered that when a driver has more years behind the wheel, they’re less likely to get in an accident or submit a claim. For the insurance company, this means cheaper quotes, and that’s why the rates are the most affordable when you are 50 years old.
According to the car insurance rates by age chart, we can conclude that younger drivers pay the most expensive rates. It’s because they’re considered high risk. The car insurance for young drivers is 4.5 times more costly than for those in their mid-30s.
Another thing to mention is that teenagers nowadays try to join their parents’ car insurance to avoid the big expenses. The quotes for teenagers are
- Three times higher than the quotes for drivers in their mid-30s
- Four times higher than for the drivers in their mid-50s
Once the teenagers gain more experience and hit their mid-20s, the cost of car insurance will drop about 30%.
Car insurance rates will continue to decline as you get older. When the drivers reach their 50s, they will have the lowest car insurance rates. However, after 60, the rates will start to increase again. This is because even though older drivers have much experience behind the wheel, they’re more likely to get into an accident.
The best prediction for how long you will live is your age, followed by your gender. Additionally, these two factors also impact your car insurance rates.
Generally and statistically speaking, men are more likely to drive risky. They pay around 12% more than women over a lifetime, but the price depends on numerous factors other than gender. Your age and the state you live in also play a significant role.
There are only seven countries that don’t allow gender to be used as a rating factor when calculating the car insurance rates, and they are:
- North Carolina
Regardless of gender, the most expensive insurance clients are teenagers. As they age, their rates drop accordingly, but gender still influences the price.
Here are a few interesting stats regarding the car insurance rates:
- Male teens pay 14% higher rates than females. This is a reflection of the risk exhibited by male drivers.
- Men aged 20 to 24 years pay 8% more for their car insurance rates than women of the same age.
- Women pay 1% less than men for car insurance once they reach the age of 25.
The vehicle’s make, model, and age have a significant impact on car insurance rates. For example, if your car is a sport edition or high-end model, it will surely cost you more to insure than a cheaper model.
Nowadays, many insurers look at how safe a particular model is to drive and the vehicle’s protection accessories. However, they also research how much potential damage it can inflict on another car. So, if you want to save money, do your homework before buying a vehicle.
We will discuss many other factors that influence your car insurance rates, such as the place you live in, your credit score, and your driving record. We will also teach you ways to pay less for insurance further in the article.
Driving Record And Car Insurance Rates
If you have a clean driving record, you will enjoy your lower premiums. But if you have a history of accidents and traffic tickets or other poor behaviour on the road, the rates will go up like crazy, especially if you hit and run.
Adult drivers with recent at-fault crashes pay 42% more for auto insurance than those with no accidents and violations. Why is this so? It’s because these drivers are statistically more likely to get into an accident.
But what defines a bad driving record? Maybe you hear this for the first time, and you are about to dive into driving. So, let’s explain everything from the start.
When you want to buy a policy, you should research and make a list of your favorite or suitable insurance companies and ask for a quote. When calculating your quote, insurers will include risk assessment and other factors we mentioned, but your driving record will be one of the most important elements. Some companies even label their drivers as high risk if they participated in multiple traffic crashes or infractions.
Another expensive thing that will cost you a lot is DUI (Driving Under the Influence). Not only will you have to pay a fine, but you will also be deemed as a high-risk driver, even if it’s just the DUI on your driving record.
If you got multiple violations on your driving record, you’d need to look for affordable car insurance for high-risk drivers. A car accident will impact your insurance for three to five years. For example, in some states like California, DUI will stay on your record for up to ten years.
Even when the driver is not at fault in a collision, car insurance companies may raise the rates in some cases. But we need to remember that auto insurance providers are businesses, and their goal is to make a profit at the end of the day. So, if you are a high-risk diver, your chances of making a claim are really high.
Now, drivers want to insure their car, and obviously, everyone wants the best and the most affordable offer. But is this doable with a bad driving record? Unfortunately, once you have a poor driving record, finding cheap auto insurance can be really tough. But you can always find ways to save some money.
For example, you could search for a more affordable insurer or buy a model of car that is cheaper to maintain. Also, you could pay your 6-month policy upfront or even take a driving course to get a discount. There are also a few other ways to lower your insurance rates. If you, however, don’t have money for any of this, you will need to wait for three to five years until your driving record is clean again so that you can get affordable prices.
Credit Score and High Insurance Rates
If you have ever applied for a leased car, credit card, or mortgage for a home, you might be familiar with the fact that your credit scores count. However, many people still get surprised when they find out that insurance companies are using credit scores to calculate their premiums and that credit scores can affect the premium rate as much as driving record.
Depending on the state law, the insurer can use your credit-based insurance score to determine risk when calculating a price for your coverage. It’s proven by historical data that your credit history can predict the likelihood of filing a claim. Some internet sources reveal that people with a bad credit score are more likely to file auto insurance claims than those with good credit. A low credit score and car insurance are dependable. Drivers with very low credit scores spend $1,546 more annually than those with exceptional credit.
However, state laws in Hawaii, California, Michigan, and Massachusetts prohibit the use of credit-based insurance scores.
Now you may know what a credit score is and what can bring it up or down. But you might wonder, what is my credit-based insurance score?
A credit-based insurance score isn’t the same as the credit score that comes into play when you apply for a car loan or credit card. A regular credit score considers info from your credit report to determine your likelihood of repaying a loan or credit. On the other hand, a credit-based insurance score looks at your payment history and total debt to determine the likelihood of filing an insurance claim.
Now, let’s be straightforward and speak about the numbers. Having poor credit means a major jump in the car insurance rates, while good credit can significantly save you some good cash. In percentages, poor credit will raise your rates by 61% as compared to the average rates. And good credit can save you almost 18% per year. However, this is affected by the credit ratings, which vary from state to state.
The average insurance rates in the states that allow credit scores to factor into rates are:
- $1,508 for a very good credit score
- $1,829 for an average credit score
- $2,940 for a bad credit score
The Most Expensive States
By now, you certainly know that every state has its own rules and laws.
Can the place of your living add up to your car insurance rates? Of course, the rates vary by state. For example, if you live in a region prone to storms or floods, or if the number of vehicle thefts is high, your state will require higher minimum coverage.
In addition, knowing the laws of your state can also help you understand how the claims will be handled.
Every state has minimum car insurance limits, which you need to meet. The minimum coverage for each state is different and may include:
- Liability coverage for bodily injury per person
- Bodily injury liability per accident
- Property damage per accident
- Uninsured/underinsured motorist coverage per person/per accident, etc.
One of the most expensive states for auto insurance in Louisiana, where drivers need to pay $2,724 for full coverage insurance compared to the national annual average rate of $1,674. Why is this so? Louisiana has a great number of lawsuits related to accidents, a high number of uninsured drivers, and everyday growing traffic density. Also, the auto repairs in this state are expensive, and the weather is so severe nowadays.
Why is car insurance so expensive in Florida?
The vulnerability to severe weather is a number one contributor to Florida’s high car insurance costs. Aside from the storms, hurricanes, and floods that this state faces almost every year, Florida has the highest number of uninsured motorists in the country (20.4%). Here, the driver should pay $700 more for full coverage.
New York drivers pay more for car insurance than the average US driver. This is due to the high number of fraudulent insurance claims made each year in addition to over 11 million registered vehicles, causing traffic to be dense and a higher likelihood of collisions. As a result, New York has the second-highest average cost of minimum coverage in the nation and the third highest full coverage rates.
Now you might ask yourself, “Why is car insurance so expensive in Michigan, Florida, Massachusetts, and Minnesota?” Because these states are considered no-fault states. There are eight more no-fault states:
- New Jersey
- New York
- North Dakota
In a no-fault state, each party files a claim to their insurer to cover their own injuries and damage after an accident, regardless of whose fault it was. Drivers in these states must carry PIP (personal injury protection) as part of their car insurance policy.
Here are the average rates for minimum and full coverage in the most expensive states.
|State||The Average Annual Cost of Minimum Coverage||The Average Annual Cost of Full Coverage|
States With the Cheapest Rates
The cheapest states, on the other hand, are Maine, Ohio, and Idaho. In Maine, full coverage for a year will cost you $965, while in Ohio, it’s $1,034, making it the second cheapest state for full coverage. In Idaho, nearly 40% of the drivers are between the ages of 30 and 54, which is the major factor that impacts Idaho’s lower-than-average rates.
Why Is Car Insurance So Expensive for Young Drivers?
Why Is Car Insurance So Expensive for an 18-Year-Old Driver?
It turns out that a lack of experience behind the wheel and a great likelihood of getting into an accident are putting young drivers into a higher risk category. This is the primary reason for paying higher premiums for car insurance. It doesn’t matter if you consider yourself a good driver; every insurer reviews your age and driving record.
Let’s get back to the most fundamental principle of insurance, which is risk assessment. Whether you are up to insure your health or car, the insurance companies will go up and above calculating how risky you’re to get insured.
Why Is Car Insurance So Expensive Under the Age of 25?
We did research ourselves, and we will share some of the stats with you that reveal how risky young drivers under 25 are.
- Drivers aged between 17 and 24 are at higher risk of being involved in an accident than older ones.
- Drivers aged between 16 and 19 are twice as likely to be killed in an accident than those between 40 and 49.
- Drivers aged between 17 and 19 are involved in a tenth of all serious and fatal crashes.
- One-quarter of 18 to 24-year-olds are involved in a collision or an accident during the first two years after passing their driving test.
Car insurance is too expensive, but luckily auto insurance rates decline as the driver gets older. Otherwise, if the probability of paying out a claim is higher, the insurer will charge you higher insurance premiums.
How to Lower Your Car Insurance
Since changing your gender or moving to another state are not feasible savings options, and there is nothing you can do about your age, you must consider other factors that can lower your car insurance rates.
If you’re wondering how to save money on your car insurance, there are a few ways worth trying. The biggest saviours of your pocket include a good driving record, defensive driving class, and car insurance discounts. We will discuss all of them in detail further in the article.
Additionally, there are other ways like:
- Shopping around for the best insurance offer
- Buying a car that can get the lowest premium
- Paying a higher deductible, etc.
Let’s look at every possible option in detail.
Improve your credit score. A good credit score plays a significant role in lowering your premium. Insured drivers with low credit scores file more claims statistically speaking, and they are a higher risk for the insurers. There are numerous ways of improving your credit score, which may drastically lower your car insurance rates depending on your location and insurance company.
All insurers determine their rates differently, so it might be a good idea to search for a company that will not weigh your credit history. For example, there are states like Massachusetts, Hawaii, California, etc., which don’t consider your credit score at all. So if you’re wondering how to lower your car insurance, maybe it’s cost-effective to just shop around for the best quote even if you have poor credit scores.
Shop around for the best offer. You can do it if your policy is about to get renewed and your premium has gone up. You should check the competing companies for new quotes every year or two. Since the competition is so vast, there might be a lower rate out there.
However, the cheapest rates are not always the best because sometimes the lowest car insurance rates mean minimum coverage.
Another thing that needs to be mentioned here is bad faith insurance. Many insurers are not creditworthy, and if the rates are too good to be true, you should run a check on the insurance company, its financial strength, the policy that you are about to purchase, and maybe research a list of bad faith companies.
Don’t overpay for your coverage. Insurance companies are business companies whose job is to sell you the maximum coverage. However, you need to make sure that you are not buying more than you require and can afford.
Let’s explain with an example.
If you have an old automobile on its last legs, it’s time to drop collision and comprehensive coverage. If the value of your vehicle is only $1,000 and the collision coverage costs you half of the price per year, there is no sense in buying it at all.
Pay a higher deductible. If you’re wondering how to lower your car insurance rates, another way is to pay a higher deductible. A deductible is an amount that you pay out of pocket before your policy kicks in. By requesting a higher deductible, you can lower your insurance cost substantially.
If you increase your deductible from $200 to $400, you could reduce the collision and comprehensive coverage cost by 15%–30%. And if you are willing to pay a $1,000 deductible, you could save over 40%. But there is one catch. If you choose a higher deductible, you must make sure that you can afford it.
Bundle your policies. This simple strategy could get you a 30% discount. Insurers typically benefit from bundles, so they will reward you with discounts for purchasing a few policies from the same insurance provider. If you decide to purchase more than one policy, you can easily use this opportunity.
Good Driving Habits
Every state has its own rules when calculating car insurance premiums. In some states, you may pay up to $730 extra per year just because of your driving habits.
Practicing good driving behavior will result in a clean driving record. If you pay attention to this aspect, you might understand that it’s the simplest and the most self-explanatory way to improve your insurance premium.
Alternatively, you can find an insurance company that offers accident forgiveness plans. With this plan, you would keep your rates stable even if you happen to get into an accident. This option is especially beneficial for young drivers under the age of 25 who are more prone to accidents.
Good Driver Discount
Also, there is a good driver discount. It’s one of the most common discounts offered by insurers, and it’s an easy way to save money. It splits into two forms:
- Accident-free discount: It’s a reduction in insurance premiums for drivers who haven’t had any at-fault accidents during a certain period. For example, with State Farm’s Steer Clear program, one may save up to 20% while learning to become a better, safer driver. If you keep a clean driving record or make attempts to do so, you can save even more money.
- Violation-free discount: you can enjoy lower rates if you haven’t had any major violations during a set period of years.
A good driver can save from 10% to 30% on their auto insurance premiums. Depending on your chosen company, you may get one or both discounts.
If you already have the discount added to your policy, you must be super careful because even a speeding ticket can affect this discount.
Driving Habits Discount
There is also another discount called the driving habits discount. It can be applied to your policy if you agree to place a device in your car that monitors your driving speed and location. Your company will collect the data from your device and evaluate your habits. You’ll receive discounts and rewards if you drive safely. So, if you consider yourself a good driver, feel free to make some money by installing this device.
Take a Defensive Driving Class
Taking a defensive driving course can bring you a discount that will let you enjoy a cheaper car insurance policy.
So, what is this course all about?
A defensive driving course teaches safe driving techniques that will equip you with knowledge of preventing an accident. Drivers who have taken this class can easily adopt defensive driver techniques like maintaining a safe distance between the cars or limiting the impact force. This could help make the roads a safer place. However, the eligibility rules and requirements vary by state.
A defensive driving course is an excellent option for fixing your driving record. In addition, you will also be able to reduce the number of points you have on your licence by taking this course.
However, make sure to ask your insurer about the discount before taking the class to know if your money and time will translate into big savings. It’s also essential to sign up for an accredited course since every state has its own rules about these courses.
Now, how much will your car insurance rates get reduced after the course? Taking an approved defensive driving course will give you a discount that lasts for three years. This discount varies from company to company and can be anywhere between 5% and 20%. Most of the insurance providers offer driving discounts of about 10%.
Most Notable Car Insurance Discounts
Car insurance discounts are the quickest way to lower your premium regardless of your age, location, and even your driving history.
When getting a quote, make sure to inquire what discounts may apply, regardless of whether your policy is new or existing.
There are many types of car insurance discounts. Some of them have been mentioned earlier in this article, and some will be further explained. Here we will list the most significant car insurance discounts:
- Multi-Policy Discounts
You can get a multi-policy discount if you hold two or more policies with your insurance provider. However, not all insurance companies offer this discount. Get in touch with your insurer to find out whether they provide multi-policy discounts and how you can qualify for them.
The multi-policy discount could reduce your insurance costs by 25%. Insurance is a business, after all, and if you show them your loyalty by insuring everything in their company, it’s logical to give you some reward.
- Multi-Car Discounts
This is one of the most popular discounts nowadays. If you decide to insure multiple cars with the same insurance company, you will likely qualify for this type of discount.
It’s a great way to offset the cost of insuring multiple vehicles. Many companies offer this discount, but not all of them provide the exact percentage. We did online research, and the top three companies whose numbers are available straightforwardly are:
- GEICO: up to 25%
- State Farm: up to 20%
- Progressive: up to 10%
- Good Student Discounts
Good student discounts are available to young drivers who earn good grades at school or college. According to statistics, they are less likely to file a claim than the teens with poor grades. As a result, the insurers think that they deserve to pay lower insurance premiums.
The typical amount you can expect to save with a good student discount is between 6% and 36%. So, it’s definitely worth considering! Getting good grades can be profitable, after all.
- Homeowner Discounts
Although we didn’t find an exact discount percentage, we found out that most car insurance providers offer discounts to homeowners. The interesting part is that you are not required to have your home insured through the same company to receive a discount.
Today, people who rent their homes pay 47% more for auto insurance than those who own a house.
- Loyalty Discounts
Insurance providers fight for their business by offering discounts to loyal customers. While some insurers, such as GEICO, call their multi-car and bundling discounts loyalty discounts, we’ve seen other insurers reward customers who’ve been with them for a long time.
This discount may not come in the traditional form of a premium decrease, but it may be more beneficial in the long term.
- New Car Discounts
Drivers with cars less than three years old are typically eligible for a new car discount, which ranges from 10% to 15%.
- Hybrid Car Discounts
Even though a hybrid automobile can cost a lot of money, it can save you some in the long term.
Some well-known vehicle insurance providers offer premium discounts to hybrid drivers. Travellers and Farmers, for example, provide a 10% discount to hybrid and alternative fuel vehicle drivers, while GEICO offers a 5% discount to environmentally conscious drivers.
- Employee Discounts
Most insurance firms offer additional discounts to the workers of different organizations, such as trade or professional associations and university alumni clubs.
For example, GEICO presently has partnerships with over 500 professional and university groups. Members of these organizations can receive membership discounts when they purchase insurance. GEICO provides a 3% reduction on the total insurance premium to these members.
- Military Discounts
If you have served in the US military or worked for the federal government, you can find companies that honour your commitment. For example, GEICO offers discounts for the policy premium ranging from 8% to 15% to current service members and federal workers, as well as veterans and retirees. Other insurers, such as USAA, sell car insurance products solely to military and defence employees, with coverage extending to up to two generations of family members.
- Full Pay or Auto-Pay Discounts
Car insurance providers usually give you a discount of up to 10% if you pay your entire six-month or yearly premium in advance.
- Online/Paperless Discounts
If you’ve chosen electronic billing, you may be eligible for a discount on your premium rates. However, this sort of discount isn’t common; it’s usually only offered by national and larger insurance firms with an internet presence, as smaller carriers lack the infrastructure.
Allied and Nationwide provide a $30 discount for setting up automatic payments via electronic fund transfer (EFT). In addition, Allstate offers two different discounts: 5% for automatic EFT payments and 10% for keeping your bills paperless.
- Low Mileage Discounts
You may be eligible for a low mileage discount if you don’t drive your car very often. Insurers will inquire about your average yearly miles whenever you get a quote.
The average individual drives approximately 12,000 miles per year, but those who drive less than 7,500 can take advantage of some significant savings. For instance, Safeco provides a discount of up to 20%.
- Senior Discounts
Drivers over the age of 55 may be eligible for a senior or mature discount, which further lowers their premiums. For example, Allstate provides a 10% discount for basic liability and physical damage coverage.
In addition, some insurers may reward drivers over the age of 55 who complete an online mature driver improvement course and get the certification. This course covers the same material as a defensive driving course and helps you improve your knowledge of defensive driving skills.
So, why is car insurance so expensive?
Auto insurance is necessary to protect you financially behind the wheel, and many factors affect the price of your policy. Understanding which of them impact the cost of your insurance may help you make better financial decisions. You may be able to find ways to reduce your risk as a driver in the eyes of insurers and, as a result, acquire more affordable rates over time.
Don’t forget to shop around for the best auto insurance companies to discover one that meets your demands and matches your budget.
How much does a defensive driving course lower your insurance with GEICO?
By taking a defensive driving course, one can lower their insurance with GEICO. The percentage of the defensive driving discounts vary by state. You can check the eligibility requirements and rates on GEICO official website.
What do you do if you can't afford car insurance?
If you can’t afford car insurance and your policy lapses, you should stop driving. You can’t drive without car insurance. Alternatively, you can look for ways to lower your insurance rates, such as opting for basic coverage, driving a cheaper and older vehicle, raising a deductible, etc.
How much is car insurance a year?
According to statistics from Quadrant Information Services for 2021, car insurance costs $1,674 per year or roughly $139.50 per month for full coverage. The average cost of minimum coverage is $565 per year. The price is affected by many factors, such as age, gender, location, driving record. So, one should shop around and look for the best offers.