Why Is Car Insurance So Expensive?

Car insurance is mandatory in most states, and most vehicle owners consider it a necessity to cover potential loss. If you get into an accident, you might be liable for car damage. Yet, car insurance is expensive, and premiums vary across the country and from one person to another. Here’s an explanation of why auto insurance rates differ and what you can do to save on premiums. 

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Why is car insurance getting so expensive?

Vehicle insurance has risen steadily, leaving car owners increasingly out of pocket. The rise in annual car insurance rates comes from factors like increasing costs of parts and repairs as vehicle technologies become more sophisticated. More disasters-related claims have also added to costs. If you understand the factors that impact the cost of premiums, you can take action to reduce the impact. 

9 Reasons why your car insurance is expensive

Here are nine major factors affecting your insurance costs. 

1. You live in an expensive location

The cost of vehicle insurance is affected by location-specific factors, like the weather and the crime rate. 

According to Market Watch, full coverage car insurance in the USA averages $2,008. The three most expensive states for car insurance are:

• Michigan: At $3,643 per annum, in Michigan, you’ll pay 81% more than the national average for car insurance.

• Florida: At $3,244, Florida is 62% above the national average. Hurricane claims and uninsured drivers increase the risk for insurers in Florida. 

• Louisianna: In Louisiana, you’ll pay $3,040, 51% over the national average. 

The states offering the least expensive car insurance are:

• Vermont: At $1,199, car insurance in Vermont is 40% lower than the national average due to lower population densities and fewer claims.

• Maine: At $1,238 annually, Maine is 38% below average.

• New Hampshire: The average insurance in New Hampshire is $1,362, 32% lower than the average.

2. You are still young

Car insurance rates are based on risk and younger people are statistically riskier drivers. They tend to indulge in riskier behavior and have less driving experience. That makes them more likely to have an accident. 

Teenagers could pay as much as $8,543 annually, while experienced drivers (26 to 50 years) with a clean record can negotiate the lowest rates. Older drivers may pay a little more as age affects reaction times, increasing their driving risk.

3. You have a bad driving history

A bad driving history indicates that you are a risk and more likely to have an accident and claim damages. The claim history factors impacting insurance premiums include:

• At-fault accidents: If you cause an accident, expect a premium increase. Also important is the number of people involved and the accident severity. 

• DUI/DWI: A conviction for driving under the influence and driving while intoxicated will raise your risk profile and your premiums. 

• Speeding and moving violation****s: Breaking the rules of the road suggests you disregard traffic regulations, raising your risk of accidents. 

4. Your credit score is low

With a few exceptions (California, Hawaii, and Massachusetts), insurance companies use your credit score to calculate your premiums. They consider your credit score a gauge of your financial responsibility. The lower your credit score, the higher your insurance claim. The logic behind including your credit score in the risk calculation is that there is a correlation between credit scores and the likelihood of an auto accident claim.   

5. Your car type is expensive to insure

The type of car you drive is a major input into the insurance cost. More expensive cars cost more to replace. Spares and repairs are also rising in price. 

Your vehicle may qualify for a discount if it has a good safety rating from organizations like the National Highway Traffic Safety Administration (NHTSA) or the Insurance Institute for Highway Safety (IIHS).

In addition, insurance companies may load premiums on high-performance cars. 

6. You have an insurance claims history

Insurance companies view your historical claims as a strong indicator of future claims. The more you have claimed in the past, the more you will pay. At-fault accidents will raise your risk profile and your premiums. High-claim accidents will have a larger impact than minor claims. The further back a claim is in your history, the less the impact on the premium. Your coverage will also influence the effect of claims on the insurance. Claims will have a higher impact on collision and comprehensive coverage than on liability only. 

7. You have additional coverage

You may choose to buy full-coverage auto insurance instead of minimum liability insurance. With additional coverage, the insurance company takes more responsibility for the accident costs, so you’ll pay more. Additional coverage may also include costs like roadside assistance and rental car reimbursement. 

8. You have chosen an expensive car insurer

Every insurance company uses different risk assessment tools and may weigh the factors differently. This could result in significantly different premiums from one auto insurer to the next. Auto insurance companies may offer clients discounts for various attributes like low mileage or multiple car insurance. 

9. Marketing conditions

Marketing conditions affect prices in any industry and the auto insurance industry is no different. The number of insurers offering competitive rates and discounts could affect the insurance offerings. Shop around to find the best insurance for you. 

How to reduce your car insurance premium

With so many factors affecting the cost of your car insurance, you can take action to reduce the impact. 

• Compare quotes: Insurance premiums can differ substantially between insurance companies. Shop around and compare premiums with benefits. 

• Increase your deductible: You could reduce your monthly premiums by increasing the deductible. You’ll pay more of the claim if you’re in an accident, but the premium savings could save you a significant sum. 

• Take a defensive driving course: Some insurers offer discounts on liability insurance if you can show that you are less of a risk with a defensive driving qualification. 

• Package your insurance: You could save as much as 10% on your premiums by adding your car insurance to your home insurance or packing two or more cars in the insurance contract. 

• Improve your credit score: Insurers may offer good payers with a credit score of between 690-850 preferential rates. 

Shop around for vehicle insurance coverage 

Your car insurance premiums may feel like a burden, but they are necessary. Insurance gives you peace of mind. If you have an accident, you’ll be happy to avoid the unplanned expenses. Don’t settle for the first car insurance quote you get. Shop around and work on reducing the impact of manageable factors, like your credit score.  

FAQ 

Can car insurance companies deny coverage?

Yes, car insurance companies can deny coverage if they consider you too risky to insure.

Is car insurance more expensive when you finance? 

Typically, when you finance a car, you may be required to purchase full coverage insurance, which is more expensive than the minimum insurance that’s legally required. 

Is car insurance more expensive when you lease?

When you lease a car, you may be required to purchase full coverage insurance, which is more expensive than the minimum liability insurance you could carry if you owned the car.

Why are some car insurance companies more expensive?

Insurance companies may weigh factors like your credit score and claims record differently, making some more expensive.

Does insurance ever get cheaper?

You could qualify for cheaper insurance if you improve your credit rating or take a defensive driving course.