Do you dread that monthly car insurance bill? Does it feel like you might be paying a lot of money for something you don’t ever use? Yet, you certainly can’t go without either. Ever wonder why the cost of car insurance is so high? The average cost of car insurance is $1621 to $1758 annually in the US.
If you pay less, consider yourself lucky. And if you pay more, are you wondering why your rates are so high compared to others? Why is car insurance so expensive in one state compared to other places? Insuring a car is costly and confusing, especially because rates can vary from company to company, state to state, or person to person.
What are the factors that impact the cost of car insurance? Read on to learn about car insurance rates.
Understanding Car Insurance Premiums
It’s challenging to give a simple answer to the question of how much is car insurance? There is a litany of variables that will impact any policy. Sure, they vary from state to state and company to company. Yet, you and your neighbor could be paying insurance premiums that are quite different.
The first thing to know is that auto insurance is under state-level regulations. That means rates from state to state vary dramatically depending on the requirements and regulations within your state. So, insurance companies will use where you live and a host of other factors to set the insurance premiums.
It also depends on the type of coverage you opt to have for your cars. In addition to the type of coverage, deductible amounts are also a factor in rates.
What kind of driver you are, how much you drive, and your history as a driver also impact your insurance premiums. So, while it seems like a simple question to ask how much does it cost to insure a car, the truth is there is a whole list of things that impact the rates, and they vary greatly from driver to driver.
Let’s first examine the types of insurance you might have on your car and how that plays a role in the premium rates.
Type of Auto Insurance
There are many different components to your auto insurance package. Again, they vary from state to state based on the minimum requirements.
Liability insurance is the first part of your car insurance package, and some states require some minimum level of liability. This covers both bodily injury liability. So, if you cause an accident that injures another person, you are covered. The other type of liability insurance is property damage if you cause damage to someone else’s property.
The next part of the auto premium is required by some states, while others have it optional. This provides you coverage if you are hit and injured by an underinsured driver.
Comprehensive coverage covers the damages to your vehicle or belongings in your car from theft, fire, hail, or vandalism. Although some states don’t require it, it can be required if you still have an auto loan on your car. You can also vary the deductible amount on the part of your coverage.
Collision coverage covers damages to your car if you hit something. Here again, you can vary the amount of coverage and deductible depending on your needs for the coverage.
Medical payments and personal injury coverage take care of injuries to you or a family member driving your car. It protects you if you need medical attention or become injured because of an accident. Again, some states require this part of insurance, while in others, it’s optional.
Overall, the more coverage you have, the more expensive your premiums will be. You must meet your state’s minimum requirements. Many people opt for higher coverage based on the value of their vehicles. One factor in the cost of your car insurance is the type of car insurance policy you put together.
Average Cost of Car Insurance by State
One of the most significant impacts on the cost of your car insurance coverage is where you live. Because states put regulations in place, the amount of coverage you get will vary from state to state and therefore impact premium costs from each state.
Great news if you live in Iowa, South Dakota or Vermont, your states have the cheapest rates for a minimum required policy. For a full coverage policy, Maine, Idaho, and Virginia are the most affordable for rates.
The bad news comes for those people who live in Louisiana, Florida, and Michigan who have the highest premiums for full coverage of auto insurance. These states also “win” a second time with being the highest in the country for minimum auto coverage in costs.
Full coverage usually means that the state requires liability insurance, plus the insurance plan also covers collision and comprehensive coverage. While your state might require you to have a certain minimum amount, you could have more. For this reason, even from state to state, you will have a range of rates.
Other Factors for Car Insurance Costs
In addition to where you live (what state) and the type of coverage you have, several additional factors can impact how much you pay for insurance. Let’s take a closer look at these factors and how they can alter the cost of what you pay for auto insurance.
Vehicle
One of the first questions your insurance agent wants to know is what car are you insuring? This is because the make, model, and age of the vehicle impact your insurance rates.
Your insurer will want to know the VIN number of the car. This tells them about the vehicle’s mileage, accident history, and other characteristics, which helps them to decide how much to charge for premiums.
Insurance agencies will also charge more for:
- Luxury cars
- Sports cars
- Electric cars
They also know from their research which vehicles have the highest rate of theft. If your car is one that is frequently stolen, expect to pay more for it. You can also expect to pay the most for a luxury car or an environmentally friendly car.
Couples and Families
It’s evident that if you have more than one car to insure, you will pay more. Families with multiple cars will have higher premiums based on volume. You can often get a discount from your insurer when you have to put insurance on more than one vehicle.
So, while you pay more for more cars, the insurance company will also consider the vehicles and the drivers of those cars. For example, a couple in their 40s insuring two vehicles will pay less than a couple in their 40s who are also insuring a teenage driver.
Age
Once an insurer considers your family and the number of cars being insured, they will look closely at the driver’s age. Statistics show that the youngest and oldest drivers are the highest risk of having an accident.
The youngest drivers, teens who are just getting started as drivers, are the highest risk and, therefore, the most costly to insure. Their rate of accidents is higher, so it makes sense they cost more. This age group is less experienced and more easily distracted, making accidents from these drivers more likely.
At the opposite end, drivers who are over the age of 80 also have a higher risk. Problems associated with their age often mean there is an increase in accident rates. So, as drivers hit that age range, they can expect to pay more to insure a car.
Gender
There are old stereotypes of male versus female drivers. Yet, do insurance companies consider the gender of a person when factoring cost?
In seven states across the US, insurance companies are restricted from charging different rates based on gender. These states are:
- California
- Hawaii
- Massachusetts
- Montana
- North Carolina
- Pennsylvania
- Michigan
In the states where there are no gender restrictions, it seems age with gender became a factor. Men in their 20s pay more than women. Once a woman gets to her 40s, she will pay slightly more than a man in the same age bracket.
Credit History
One huge factor in insurance rates is a person’s credit history. You should know that your credit score, like impacting your ability to buy a house, a car, or get a job, will affect your car insurance rates.
Insurance companies will take a close look at your credit history to adjust your rates. Even if your driving history is clean, you become a greater risk to insure with poor credit.
There are about 130 factors that make up your FICO credit score. Your insurance company doesn’t look at all of them. Instead, they consider about 30 of those factors to decide the risk associated with insuring you. These factors will impact your rates.
Rates After an Auto Accident
Probably that once you have had an accident, especially one where you are at fault, your rates will increase. Prices can be at least 50% higher for drivers who have been involved in an accident where they are at fault than those who haven’t had an accident.
This rate varies by state. Some states the rate of increase is between 30% and 60% higher rates. If you live in California, Massachusetts, or North Carolina, you can expect your rates to jump as much as 80% following an at-fault accident.
Insurance companies recognize what happens once you’ve been in an accident. Some policies now come with something called accident forgiveness. If you have discounts on your policy for previously being a good driver, you might lose those once you have been in an accident.
The other factors include the severity of the accident. If, for example, injuries are needing medical care, your rates can go up more than a collision with a beat-up fender.
Driving Under the Influence
Drivers who get a DUI can expect a big jump in insurance rates. They can also expect to pay more if this is on their record when getting a new policy. For an insurance company, this shows a high-risk behavior that could be potentially costly if you repeated that behavior.
Other Considerations
There are a few other factors for insurance rates. If you are speeding and get a ticket, that can increase your rates.
If you live in an urban area versus a rural area where there is less congestion and fewer drivers, you can expect to pay more. With more people on the road, there is more risk of accidents.
Once all of these factors are considered, there are still differences in rates from each company. Be sure to shop around and compare rates from one insurance company to another.
Also, don’t be afraid to ask for discounts. For example, companies might offer discounts for having a clean driving record for several years. You might get a discount for being a teacher, for example. When comparing rates, ask the insurance company to look for ways to be competitive and get you a better rate.
If you have been with the same company for a long time, it might make sense to shop around and see if another company could get you a better rate.
Understanding the Average Cost of Car Insurance
Statisticians can gather insurance rates from place to place and do some math to give the average cost of car insurance. But the truth is understanding auto insurance premiums is complicated and not as simple as just doing a math calculation.
Insurance companies factor in multiple conditions and meet the required regulations to come up with your premium rates. Be sure to ask your insurance provider how they came up with the premium number. What factors are used to calculate your rate?
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