Rising prices are ubiquitous, and more individuals are struggling to afford the necessities. That includes automobile insurance. Car owners around the country are receiving renewal notices with rate increases, some of which are large. These unexpected changes may have you thinking, "Why is my vehicle insurance so expensive?" Understanding why vehicle insurance is so expensive these days will help you find cheaper options.
The surge in auto insurance costs has become a pressing concern for many Americans, with some experiencing rate hikes of up to 20% or more in recent months. This trend has led to increased financial strain on households already grappling with inflation in other areas of their budgets. As a result, many drivers are finding themselves forced to make difficult decisions, such as reducing coverage or even considering going without insurance altogether – a risky and often illegal choice.
Your individual driver profile, which includes criteria such as where you reside, your age, and your driving record, determines the amount you pay for auto insurance. However, growing car repair costs and an increase in disaster-related claims are key factors driving up car insurance prices for many drivers.
Personal and social factors.
Location
Where you live might have a significant impact on how much you spend for auto insurance. Some states mandate drivers to have higher levels of automobile insurance coverage, which adds expenses. Living in an area with higher automobile insurance repair costs or a greater risk of theft and vandalism raises the cost of coverage. Furthermore, residing in an area prone to severe weather, such as flooding or hail, might lead to higher auto insurance rates.
Whether you live in a rural or urban area can influence how much you spend for vehicle insurance. This is because living in a major city with more cars on the road increases your chances of getting into an accident. According to the review of full coverage car insurance prices by state, the average annual cost of auto insurance throughout the US is $2,118. However, drivers in New York pay the highest ($4,769 a year), while those in Idaho pay the lowest ($1,021).
The disparity in insurance costs between states and even within cities has led to calls for more standardized pricing practices across the country. Consumer advocacy groups argue that the current system disproportionately affects low-income individuals and minorities, who often reside in areas with higher insurance rates. Some states, like California, have implemented regulations to limit the use of zip codes in determining insurance premiums, but the debate over fair pricing continues to be a contentious issue in the industry.
Age & Gender
It may not seem fair, but two factors beyond your control—age and gender—can influence the amount you pay for auto insurance. Not all states allow vehicle insurance providers to include gender. The following six states restrict the use of gender when pricing auto insurance:
- California
- Hawaii
- Massachusetts
- Michigan
- North Carolina
- Pennsylvania
Regardless of where you live or your gender, young drivers typically pay the highest rates for auto insurance, owing to their lack of driving experience. Men also tend to pay greater rates than women since they are more prone to engage in risky driving practices. Rates tend to fall across all age groups as time passes. However, around the age of 65, seniors' auto insurance rates typically begin to rise again.
The impact of age and gender on insurance rates has sparked ongoing debates about fairness and discrimination. While insurers argue that these factors are statistically relevant in assessing risk, critics contend that such practices perpetuate harmful stereotypes and unfairly penalize certain groups. Some progressive insurance companies have begun exploring alternative methods of risk assessment, such as usage-based insurance programs that rely on telematics to monitor driving behavior, potentially offering a more equitable approach to pricing.
Marital Status
Married people typically pay less for vehicle insurance than unmarried ones. If you're a newlywed couple with separate insurers, it can be beneficial to check with both providers to determine who will provide you with the cheapest rates. Even better, compare rates from many companies to obtain the best offer.
Education and occupation
A 2021 Consumer Reports survey discovered that certain auto insurance firms charge higher premiums to drivers with less education or lower-paying occupations. According to the report, these insurers believe there is a correlation between these qualities and the risk that each individual driver poses to the insurance. Car insurance firms feel that persons with a greater degree of education will submit fewer claims, making them less expensive to cover.
Credit History
Insurers may use a credit-based insurance score to calculate your rate. In the same way that lenders use a regular credit score to assess a borrower's risk, vehicle insurers utilize a credit-based insurance score to predict whether a driver would submit a claim. Car insurance providers suggest that drivers with bad credit are more prone to file claims. That means that drivers with bad credit typically pay more than those with good credit. California, Hawaii, Massachusetts, and Michigan do not allow the use of credit to price vehicle insurance coverage.
The use of credit scores in determining insurance rates has come under intense scrutiny in recent years. Critics argue that this practice unfairly discriminates against low-income individuals and those who have experienced financial hardships, potentially creating a cycle of higher costs for those least able to afford them. Some states have taken action to limit or ban the use of credit scores in insurance pricing, while federal legislators have proposed bills to address this issue on a national level. As the debate continues, insurers are facing increasing pressure to justify their pricing models and explore alternative methods of risk assessment.
Home Ownership
According to consumer advocacy groups, those who do not own a home often pay more for vehicle insurance than homeowners do. Homeowners can also take advantage of another benefit that might reduce their costs: bundling your homeowners and auto insurance policies with the same provider may result in a discount.
Driving skills
Adding additional drivers and vehicles.
Insuring young, inexperienced drivers, such as youngsters in the household who recently obtained a driver's license, can be exceedingly costly. It is considerably more expensive to insure two or three vehicles than one. You may be eligible for a small discount for insuring numerous automobiles, which can help to offset the overall higher cost of insuring more than one vehicle.
Driving Experience & Mileage
Newer drivers, particularly those under 25, pay significantly higher vehicle insurance premiums than other drivers. However, comparison shopping might help you avoid spending more than required. You can locate low-cost car insurance for teenagers and young drivers by comparing quotes from providers that provide the coverage and features you require.
If you drive a lot, your chances of getting into an accident go up. As a result, insurers tend to charge greater premiums to individuals who drive frequently. On the other hand, if you drive relatively rarely in a year, you may qualify as a "pleasure use" driver, which could result in lower rates. Alternatively, you may qualify for a low-mileage discount.
Speeding Ticket and Accident Record
Staying ticket and accident-free may be the single most effective technique to keep your vehicle insurance costs low. According to Forbes Advisor's investigation of how much vehicle insurance premiums rise after a speeding ticket, drivers who are ticketed pay 24% more per year on average. However, some vehicle insurance providers are more tolerant than others. Our analysis revealed that Geico offered lower rates for drivers with a speeding ticket than competitors.
An accident might raise your premium even higher than a speeding ticket: the national average rate rise for drivers who cause an accident with property damage is 45%, according to our analysis of car insurance rates after an accident. Car insurance companies analyze risk differently, so if you are involved in an accident, you should compare prices from several insurers. For example, our data revealed that State Farm had the lowest average rate increase (21%) for at-fault property damage accidents.
DUI Record
Being convicted of DUI can have a severe impact on your efforts to keep your vehicle insurance rates low. The national average increase in vehicle insurance rates following a DUI is 70%. You may perhaps struggle to find coverage at all. There are numerous reasons not to drink and drive, and keeping your vehicle insurance prices low is only one.
Choice of Vehicle and Safety
Car Make and Model
The type of vehicle you drive might also affect your auto insurance costs, particularly if you get collision and comprehensive coverage. For example, Forbes Advisor's investigation of the most and least costly automobiles to insurance revealed that the following popular cars are the cheapest to cover:
- Honda CR-V
- Jeep Wrangler Sport
- Subaru Crosstrek
In comparison, here are the most expensive automobiles to insure, based on the vehicles in our analysis:
- Tesla's Model S Performance
- Lexus ES300H
- Volvo XC90 T8 Inscription
The history of claims for a model, as well as the cost of repairing the car, all contribute to how much you pay for insurance.
The increasing complexity and technological advancements in modern vehicles have significantly impacted insurance costs. While these features often enhance safety and performance, they can also lead to higher repair and replacement expenses. For instance, advanced driver assistance systems (ADAS) like lane departure warnings and automatic emergency braking require specialized calibration and equipment for repairs, driving up costs. Additionally, the growing prevalence of electric and hybrid vehicles introduces new considerations for insurers, as these cars often have more expensive components and require specialized repair facilities. As the automotive industry continues to evolve, insurers are adapting their pricing models to account for these technological advancements and their associated risks and benefits.
Financed or leased car
When you lease a car, your insurance premiums are likely to rise. That's because you don't own the car; the leasing company does. The leasing firm wants to ensure that its investment is effectively protected, which means you may pay more.
If you finance an automobile, your payments should be lower than if you leased it. However, your lender will still ask you to carry enough insurance to cover the investment until the loan is paid off. If you finance or lease your automobile, your lender will normally need you to have full coverage car insurance, which includes comprehensive and collision coverage to cover damage to your vehicle.
Garage Parking
Parking your automobile in a garage every night may reduce your insurance premiums because the vehicle is better protected than if it were on the street. If you park your car in a garage, your insurer may offer you a "garage discount" on your collision and comprehensive premiums.
Thefts and Claims in Your Community
Auto insurers analyze internal and external data to determine the rate of theft and other car insurance claims in your area. If you live in an area with a greater level of crime or vandalism, or if residents have a history of filing claims, possibly due to extreme weather, your costs will rise.
Car Trim Levels and Safety Features
If your automobile has premium trim levels, repair expenses after an accident are likely to be more than for a less flashy car. Your insurance rates are likely to reflect this truth. It's normal to anticipate sophisticated safety measures to cut car insurance prices because they help prevent accidents. However, these elements might be costly to maintain or replace. Cars that are more expensive to repair tend to have higher insurance rates.
Choice of Car Insurance Companies
Current insurance company and previous insurer
Shopping around for vehicle insurance is an excellent method to reduce your prices. Each insurer has its own rate-setting methodology, and your driver profile is likely to be more appropriate for some firms than others. If you believe your current insurer's rates are excessively expensive, it may be beneficial to browse elsewhere. Your auto insurer may have raised its rates higher than other businesses to compensate for losses it paid out. Comparison shopping will assist you in determining which firm currently offers the most inexpensive rates.
Your previous auto insurance experience may have also contributed to your current rates being higher. If you made frequent claims with your previous insurer or failed to pay your premiums on time, you may be paying higher rates today as a result of your past misdeeds.
Insurance lapses
A lapse in vehicle insurance coverage is an often-overlooked factor for higher rates. Whether you purposefully canceled your policy or were dropped for failing to pay your payment, a "gap" in your insurance coverage can be a red flag that raises your premiums. According to Forbes Advisor's examination of vehicle insurance premiums, drivers who have lapsed coverage pay 25% more. Maintaining ongoing coverage is critical if you want to get the best vehicle insurance prices.
Coverage Selected
The type of coverage you choose will have a significant impact on your auto insurance rates. A liability-only auto insurance coverage has the lowest premiums, but it offers minimal financial protection. The more forms of automobile insurance you choose, the higher your rates will be. For example, if you purchase optional types of coverage, such as collision and comprehensive coverage, that are not required by law in your state, you will pay more.
Paying more for comprehensive coverage is often the best thing to do, despite the additional cost. Although paying higher premiums can be painful, they may prove to be a bargain if you are involved in a costly accident or your vehicle is stolen or damaged by a non-crash event. Even the cheapest full-coverage automobile insurance policy offers greater financial protection than a policy that meets the state's minimum need for legal driving.
Loyalty and Discounts
Being too devoted to one vehicle insurance company may result in higher rates. Some businesses have been detected charging greater fees to customers who, they learned, do not browse around for better deals. The strategy, known as price optimization, is prohibited in 20 states, but it may effect you based on where you live. Comparison shopping to verify you're getting the lowest price attainable with your current company—or switching auto insurance companies—is the greatest method to ensure your loyalty to an insurer is not exploited.
The lack of discounts could be another reason why your auto insurance premiums have climbed. If your automobile is a few years old, your new car discount may have decreased. Perhaps you received a citation and lost a good driving discount, or you failed to submit the papers proving your child's eligibility for a good student discount. Check with your auto insurer to see what discounts you now have and whether you are eligible for any more.
Car Insurance and Claims History
Your personal history of filing vehicle insurance claims, as well as your track record of paying your bills on time, might have an impact on your premium costs. Multiple claims make you appear to be a hazardous driver, which raises your auto insurance rates. You may also pay more if you have not maintained continuous auto insurance coverage.
Factors That Make Car Insurance So Expensive
In addition to the reasons listed above that can raise an individual's vehicle insurance rates, certain societal trends lead to increased insurance costs. They include:
Post-pandemic driving habits
During the epidemic, lockdowns and widespread fear of the Covid-19 virus kept people out of their cars and at home. That meant they were driving much less. Many motor insurance responded by lowering the premiums their clients paid. However, with the pandemic essentially behind us, cars have returned to the highways in vast numbers. More drivers on the road, covering longer distances, means more accidents—and higher vehicle insurance prices.
The post-pandemic shift in driving habits has had far-reaching effects on the insurance industry. As remote work becomes more prevalent, many insurers are reevaluating their pricing models to account for changes in commuting patterns. Some companies have introduced more flexible policies that allow customers to adjust their coverage based on their actual mileage or usage. Additionally, the pandemic has accelerated the adoption of telematics and usage-based insurance programs, which use real-time data to more accurately assess risk and potentially offer lower rates to safe drivers. These innovations may help mitigate some of the cost increases associated with the return to pre-pandemic driving levels.
Inflation
Nobody in America will be surprised to find that inflation has affected all sectors of the economy, including vehicle insurance. New and secondhand car prices have risen dramatically in recent years. Parts for car repairs have become more difficult to obtain—and more expensive—and garages have had to raise wages to attract workers in an era of labor shortages. As automobiles become more expensive to fix and replace, car insurance rates rise to meet future claim payouts.
Climate Change
Climate change may be contributing to a rise in calamities such as storms, wildfires, and flooding, putting more automobiles at risk. If a higher-than-average number of claims are paid out as a result of catastrophic weather occurrences, insurance firms often seek to pass those costs on to their consumers in the form of increased premiums. If you live in a state that is frequently impacted by severe weather, you will most certainly pay more than drivers in other states. For example, the average cost of car insurance in Florida, which is in the path of many tropical storms and hurricanes, is $4,326 per year, whereas the average cost in Ohio, which rarely sees extreme weather, is only $1,112.
The Rise of Electric Vehicles
Many scientists believe that transitioning to electric vehicles (EVs) will reduce emissions and mitigate climate change. However, while EVs are beneficial to the environment, they can be expensive, particularly in terms of electric car insurance. EVs are more expensive to replace and repair, which might lead to higher insurance costs. If you want to buy an EV, check out our list of the most and least expensive green vehicles to insure.
An increase in the theft of vehicles and car parts
Crime has increased dramatically across the country in recent years, particularly in major cities. The National Insurance Crime Bureau (NICB) reports that there would be over 64,000 thefts of catalytic converters in 2022. That's a 290% increase in stolen catalytic converters since 2020. Cities like Dallas and San Francisco have been affected particularly hard. Car thefts are also on the rise, with the NICB estimating that the number will exceed 1 million by 2022. These losses drive up claims and vehicle insurance costs.
Broken supply chains and shortages
The pandemic put pressure on global supply networks, slowing the flow of parts and making them difficult to find. The basic rule of supply and demand took over from there, leading part costs to rise and raising the cost of car repair. That reality obviously resulted in higher auto insurance prices.
Slower Claims Impacting Customer Satisfaction.
Customer satisfaction with insurers is rapidly declining, according to a J.D. Power survey of almost 8,000 vehicle insurance clients. Many drivers are dissatisfied with how long today's claims take to process.
While this may not immediately result in higher auto insurance costs, it does create conditions that leave drivers—who are already disgruntled with growing insurance premiums—dissatisfied with their coverage.
Slower claims might cause your auto insurance rates to rise since insurers must pay for rental cars while drivers wait for repairs or find a substitute for their damaged vehicle.
Enterprise Rent-A-Car's research analyzes how long drivers utilized rental cars while their autos were being fixed following an accident. According to the report, the average period of a rental car for non-driveable automobiles following a collision is 26 days, with five of those days spent waiting for an insurance company to approve repairs. If an automobile is totaled, the rental period is slightly longer, at 17 days.
How to Reduce Auto Insurance Costs
As you can see, several variables are driving up vehicle insurance costs. Fortunately, you may fight back by taking actions to reduce your premiums.
You can save money on auto insurance by doing the following:
Choose the Right Car
Before you buy your next automobile, do some research to find out how much it will cost to insurance the models you are thinking about buying.
The cost of insurance should not be the main factor in deciding which car to buy. However, you will have to pay for insurance for the duration of your ownership, so choose a vehicle that keeps this ongoing expense to a minimum.
Take Driving Courses and Drive Carefully.
Staying accident and ticket-free is one of the most effective strategies to keep your vehicle insurance costs low. So, employ common sense on the road.
You can also benefit from taking a course to help you improve your driving skills. Drivers who finish this type of course are eligible for discounts on auto insurance from insurers such as Amica and American Family. Some insurance providers may need you to be at least 55 years old to qualify for a defensive driver discount.
Maintain a good credit score.
In many—but not all—states, insurers may consider your credit score when determining your insurance prices. In states that consider credit, drivers with good credit typically pay less for car insurance.
Even drivers with weak credit can save money on auto insurance by looking around for the best deals. The finest auto insurance for drivers with bad credit will provide the coverage you require at a price you can afford.
Compare Multiple Car Insurance Quotes.
Comparing vehicle insurance prices is one of the most effective strategies to cut your insurance costs.
Each insurer has its own formula for determining premiums. That implies you may be able to discover a car insurance company that charges you less than your present insurer.
It's easy to become comfortable with your insurer and continue with them year after year. However, comparing vehicle insurance rates on an annual basis might help you determine whether an insurer is a better fit for your driving profile.
For example, we compared prices for good drivers—those with no fines or accidents on their record—and discovered a nearly $1,400 gap between the lowest and most expensive providers. Auto-Owners is the lowest car insurance carrier, at $1,628 per year. Allstate is the most expensive, costing $3,000 per year. These auto insurance costs demonstrate the value of looking around for the best deals.
Choose the right coverage and deductible.
Choosing a higher deductible is an excellent method to reduce auto insurance costs. When you do this, your insurer usually decreases your auto insurance premiums. Upping your auto insurance deductible might result in savings ranging from 7% to 28%.
Another option to save money is to reduce coverages that you can live without. If your automobile is old and you've paid off your loan, you might want to consider removing collision and comprehensive coverage entirely.
However, keep in mind that doing so means you will be responsible for any damage to your vehicle as a result of an accident.
Bundle Auto and Home Insurance
Many insurance firms provide a discount to policyholders who purchase both their auto and homeowners policies from the same company, a practice known as bundling. The average bundle discount is 14%, according to the survey of the best home and vehicle insurance bundle providers.
However, packages aren't always the most cost-effective option. Shop around and compare rates on both forms of coverage. The Insurance Information Institute points out that even if you are offered a bundling discount, you may be able to save money by getting your homeowners and auto insurance from different firms.
Check for low mileage rates and pay-per-mile programs.
Being a low-mileage driver can lead to lower vehicle insurance costs. If you travel less than 11,000 miles per year and are looking for cheap car insurance, Nationwide, Travelers, and USAA are worth considering.
You can also look into pay-per-mile auto insurance. These schemes offer a daily or monthly rate plus a per-mile fee, which can result in reduced rates for individuals who do not drive frequently.
Discounts
In addition to the reductions shown above, you may be eligible for further savings. For example, some insurers provide discounts if you pay your account online or go paperless. Many companies provide discounts to drivers who have cars equipped with specific types of safety features, such as anti-lock brakes.
Other frequent auto insurance discounts include those for insuring multiple vehicles and student drivers with outstanding grades.
Pay premiums beforehand
Finally, if you agree to pay for your entire policy term (usually six months) all at once rather than in payments over time, you may be able to save money on premiums.
