Have tariffs affected car insurance rates, and will refunds help?

Do tariffs affect the cost of car insurance?

Yes, tariffs on goods from Canada and Mexico, and increased tariffs on China, could significantly raise the cost of car insurance in the U.S. The U.S. imports around $56 billion in auto parts from Mexico, Canada, and China, according to the Observatory of Economic Complexity (OEC). There are also tariffs on steel, aluminum, and semiconductors, all of which are used in car manufacturing. The cost of car insurance will likely rise due to higher repair and replacement costs driving higher claim costs for insurance companies.

“The primary driver of what we all pay for auto insurance is the cost of the claims. So, to the degree that tariffs increase the cost of anything that insurance products pay for, such as building materials costs, the cost of auto replacement parts, repair costs, and new cars, that will increase loss costs and create upward pressure on insurance premiums,” says Bob Passmore, department vice president, personal lines, at the American Property CasualtyLiability or loss resulting from an accident. Insurance Association (APCIA).

“The tariffs could also disrupt supply chains, not just for auto repairs, but at a critical moment of rebuilding from recent catastrophes, including Hurricane Helene and Milton and the unprecedented California wildfires,” he says.

While there is no tariff on car insurance, tariffs on car parts and materials could eventually increase insurance rates as insurers pay more to repair or replace vehicles.

What are tariffs?

A tariff is a tax on goods from another country that helps regulate trade. The tax is typically a percentage of the cost of the item and is paid to U.S. Customs by the company that imports the goods.

The U.S. government decides which countries and goods receive the tariffs and the amount. Tariffs are used for various reasons, such as increasing domestic sales, raising government revenue and as political bargaining tools. Tariffs can also stimulate the economy by encouraging citizens to buy items made in the U.S.

However, tariffs also increase the cost of imported goods. The increased costs of the goods and associated products can cause the cost of other items, such as car insurance, to increase indirectly.

How do tariffs work?

Tariffs work by charging a percentage of the cost of imported goods as a tax paid by the importer, increasing the cost of those goods. Typically, the company passes those increased costs on to the consumer.

For example, let’s say a car dealer imports a vehicle that costs $40,000, but a 25% tariff is introduced. That vehicle now costs the dealer $50,000 to import. Instead of losing $10,000 due to the new tariff, the dealer will increase the selling price by $10,000.

Other associated costs, such as vehicle parts and insurance, increase secondarily. In the example above, car insurance rates on that vehicle would also rise since its value is higher.

Who pays tariffs?

Companies that import goods pay the tariffs and then pass the cost to consumers. That means the amount a consumer pays when they buy an item is higher to cover the tariff, so ultimately, consumers pay for the tariffs.

Why do tariffs increase the cost of car insurance?

Tariffs can increase car insurance rates by raising the cost of vehicle repairs, pushing up claim costs, which are then translated into higher insurance rates to cover them. U.S. auto manufacturers buy parts and materials from countries like China, Canada and Mexico, and tariffs increase the cost of importing those necessary components.

For example, if the cost of vehicle replacement parts from China increases, then repair costs rise. This means the insurer has to pay higher costs when dealing with a repair claim. The same would be true if your vehicle is totaled in an accident. Tariffs increase the cost of new and used vehicles, and the insurer would pay more to replace a totaled car.

Car insurance companies don’t immediately raise rates to compensate for higher repair costs, but drivers can expect rates to increase once the insurer determines that claim costs have risen. Drivers will see increased rates when their policies renew or when they shop for a new policy. The impact of tariffs on auto insurance lags behind the impact on the auto parts and new car markets.

"I think insurance is probably the laggiest of all the markets that could be impacted by tariffs. We haven't seen strong evidence yet that tariffs are directly affecting auto insurance prices, but that doesn't mean they won't. As long as the tariffs remain in place, it's reasonable to expect more price increases over the coming years," says Alex Durante, senior economist for The Tax Foundation.

How much could tariffs increase car insurance rates?

Car insurance rates may increase an estimated $35 to $125 for year, according to Robert P. Hartwig, clinical associate professor and director of the Center for Risk and Uncertainty Management for the Darla Moore School of Business at the University of South Carolina. The exact amount depends on many factors, including the tariff amount, its duration, and the country affected.

Although the Supreme Court recently struck down some tariffs imposed under the International Emergency Economic Powers Act (IEEPA), most tariffs affecting the auto industry remain in effect, including 25% tariffs on imports from Mexico and Canada. Because auto parts and materials, such as steel and aluminum, are included in these tariffs, insurance claims costs may increase, which will be passed along to policyholders.

“This increase will be in addition to increases due to other factors, such as the cost of labor and increases in the price of domestically manufactured parts. Tariffs imposed on Chinese-manufactured parts and separate tariffs on imported steel and aluminum (sourced from all countries) will still push up premiums,” Hartwig says.

While past rate increases may help make up the cost difference, it’s unlikely that insurers will absorb the expense.

Are there tariffs on imported cars now?

Yes, while some tariffs were removed or reduced by the Supreme Court, tariffs are still in effect for imported cars. On April 2, 2025, a 25% tariff on all imported vehicles was announced. This increased the cost of new cars, which in turn raised the price of used cars as potential new car buyers looked for cheaper options.

How tariffs could continue to affect car insurance rates

Tariffs can raise the cost of repairing or replacing vehicles, which can eventually increase car insurance rates. Although some broad tariffs were recently removed or reduced by the Supreme Court, many tariffs tied to the auto industry remain, including those on imported vehicles, auto parts, steel, and aluminum.

Some newer policy changes may help lower costs for automakers, but repair shops and insurers are still paying more for parts, materials, and labor than they were a few years ago. Because of that, drivers could continue seeing higher insurance premiums, even if the pace of increases starts to slow.

FAQ: Tariffs and insurance

Do tariffs also affect home insurance rates?

Yes, tariffs can affect home insurance rates due to the increased cost of materials used for building. For example, tariffs on steel and aluminum increase the cost of building and repairing homes, increasing insurance rates due to the increased cost of homeowners insurance claims.

Who gets tariff refunds ?

Tariff refunds are paid to the companies that originally paid the tariffs. While the refund may result in these companies lowering prices, there's no requirement for any refunded tariffs to be passed to consumer who already paid the higher prices resulting from tariffs.