Why is auto insurance expensive?
You may have noticed that you pay more for auto insurance lately than in previous years. There are several possible reasons behind this trend.
"Auto insurers distributed $14 billion in account credits and cash refunds to drivers across the United States in 2020 because of drastic changes in driving patterns brought on by the pandemic," explains Mark Friedlander, director of corporate communications for the Insurance Information Institute in St. Johns, Florida. "This generated a significant decline in miles driven and claims frequency and led to an overall decrease in the cost of auto insurance in 2020."
However, auto insurance rates normalized in 2021. That's because driving patterns returned to pre-pandemic levels and accident frequency increased.
"Many drivers have been out of practice, having driven less during the first year of the pandemic. That has led to more accidents, which results in higher insurance claims. This has prompted carriers to increase premium rates," says financial expert Lyle Solomon, principal attorney for Oak View Law Group in Rocklin, California.
Other factors include:
- Inflation
- Supply chain disruptions
- High repair costs
- Longer repair times due to parts shortages
What factors determine how much you pay for auto insurance?
Many determinants impact what you are charged for auto insurance. Consider the following factors.
Your age and gender
Drivers younger than age 25 and older than age 70 typically pay the most for auto insurance because of their higher accident frequency, according to Friedlander. Young drivers are considered a higher risk, so teens especially pay higher rates than other drivers.
Women tend to get into fewer accidents, have fewer driving under the influence accidents, and are involved in less serious accidents than males. So, women usually pay lower auto insurance rates.
"Typically, inexperienced drivers pay more for premiums, and female drivers pay less than male drivers for auto insurance," Solomon says.
State where you live
Geographic location has a lot to do with your auto insurance bill. Areas with more claims typically pay higher rates.
"More populous states typically have average higher rates than less dense locations. Due to higher rates of vandalism, theft, and accidents, urban drivers also pay a higher auto insurance price than those in small towns or rural areas," Friedlander continues.
Car insurance coverage options
The math is simple: The more auto insurance coverage you have, the more you pay in insurance premiums.
"The limits on your basic auto insurance required by your state, the amount of your deductible, and the types and amounts of policy options -- such as comprehensive and collision coverage -- that are prudent for you to have all affect how much you will pay for coverage," says Friedlander.
Driving history and claims
If you have traffic violations, tickets and accidents on your driving record, your insurance rates will likely spike.
"A bad driving record shows that you are more likely to file insurance claims, so insurance companies will consequently charge higher premiums," cautions Solomon.
How much more does a high-risk driver pay? Drivers with a good credit history pay an average of 18% less than those with a low credit score.
Type of car
The value of your car, based on its make, model, age, mileage, and other factors, factor into your auto insurance premiums. Other variables include the cost of repairs, the likelihood of theft, engine size, and the overall safety record of your vehicle.
"Sports cars usually have steeper insurance premiums than other types of vehicles. They go fast and have a higher risk of getting into accidents frequently," Solomon says.
Automobiles with high-quality safety equipment might qualify for premium discounts, adds Friedlander.
Credit score
Many insurance carriers use a credit-based auto insurance score, which suggests the likelihood of your filing a claim. A high credit-based insurance score commonly means you’re less likely to file a claim, thereby leading to a premium reduction.
Not all states allow insurance companies to use a person’s credit history when devising rates.
Driving habits
Do you tend to drive a lot of miles? The more time you log behind the wheel, the greater your chance of getting into an accident. So, you'll likely pay more for an auto insurance policy.
"You will usually pay more if you drive your vehicle to and from work or use it to commute long distances," Friedlander says. "If you drive only occasionally, you will probably pay much less."
Deductible
If you want a lower premium, consider raising your deductible.
"A high deductible means you'll pay a substantial amount out of pocket in the event of an accident, but your premium will be less, and vice versa," notes Solomon.
If you choose a higher deductible, such as $1,000 or $2,000, make sure you set aside that amount in case you need to file an insurance claim.
Marital status
Being married often triggers a slight reduction in insurance premiums, says Tyler Koblyski, a personal injury lawyer in Chicago.
"It is shown that married men and women are more risk-averse," he says.
Interestingly, insurance companies often raise premium rates after a divorce or when a policyholder's spouse passes away.
How to lower your car insurance premiums
There are many things you can do to shrink the size of your car insurance premium.
Shop around for auto insurance
"The most practical way to pay less is to shop around and get quotes from numerous insurance companies," suggests Koblyski.
When considering quotes from multiple insurance companies, "set the same coverage, deductibles, and limits so that you are comparing apples to apples," Solomon advises.
Get discounts, including bundling
Friedlander recommends purchasing your auto and home insurance from the same insurance company, which is called "bundling" policies. Bundling discounts can reap savings of 20% or more on each insurance policy, depending on the insurer.
"Additionally, ask about other common discounts you may be eligible for. These can include a discount for having anti-theft devices, completing a defensive driving course, driving low miles annually, being a long-time customer, having more than one vehicle on the policy, and having no accidents or moving violations in the past three years," Friedlander adds.
Get a higher deductible
Increasing your deductible is another way to lower your premium. You can save hundreds by increasing your deductible from $500 to $2,000.
Find the right insurance company for you
Just because you’re quoted a lower premium doesn't mean you should necessarily take it.
"Some substandard insurance companies offer competitive premiums, but the downside is that if you need them, they are unlikely to be on your side. It's often better to pay a little extra for a higher-rated company with a great history of solid customer service and quick claim payouts," says Koblyski.
Auto insurance FAQs
Why is my insurance so high with no accidents or tickets?
Even though you may have a clean driving record, you may pay more for car insurance today than a few years ago. That's due to things like inflation, a higher frequency of accidents compared to the onset of the pandemic, supply chain disruptions, higher repair costs, and longer repair times because of parts shortages, among other factors.
What you pay will also depend on your age, gender, state, coverage options, type of car, credit score, driving habits, deductible, and marital status.
What makes a car cheaper to insure?
The older a vehicle is and the less it’s worth, the lower your premium will likely be. Newer, sportier, and more expensive vehicles will commonly trigger higher insurance premiums.
Why is insurance so expensive under 25?
Mature drivers usually have fewer accidents than less experienced drivers, particularly teenagers.
Insurance companies base premiums on risk. Riskier drivers pay more than ones that likely won’t file many car insurance claims. Since inexperienced drivers get into more accidents, insurers view them as riskier and charge higher car insurance premiums.
Is insurance higher for new cars?
Insurance premiums are usually higher for newer vehicles because of their higher market value. The cost of repairs is also greater for newer vehicles because of manufacturer-installed safety features that can be expensive to replace or repair.
Also, if you have full coverage insurance, your car insurance company could be on the hook if you total your car, which is why they will likely charge more for premiums, says Koblyski.
Why is my car insurance going up every year?
Your automobile insurance premiums may increase from year to year for several reasons. These include inflationary factors, your driving record, history of claims, and driving habits, your credit score, the state you reside in, and your advancing age.
The Insurance Information Institute reports that rising claim costs have been the primary factor generating insurance premium increases over the past decade.
Which cars have the highest insurance rates?
Typically, newer, sportier, and more expensive vehicles cost more to insure.
Sports and luxury cars have the highest insurance rates, including models by BMW, Mercedes, Audi, Lexus, Maserati, Porsche, and Jaguar, says attorney and financial expert Lyle Solomon.
