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Why is car insurance so expensive?

Fact-checked with HomeInsurance.com

    Article Highlights

    Car insurance premiums may feel unreasonably costly to many drivers, begging the question: “why is car insurance so expensive?” In summary, it can be simply stated as “risk assessment,” but beyond that, complicated, provider-specific calculations go into performing that analysis. On the surface, car insurance companies are primarily interested in drivers’ experience, as this is a good meta-indicator of how likely a person is to have an accident or file a claim. However, diving beneath that surface reveals a complexity of variables at play.

    What makes car insurance so expensive?

    Many factors contribute to determining each driver’s insurance premiums — primarily relating to the driver profile. These variables and calculations can differ between car insurance companies, but generally have significant overlap. Although the insurance companies use similar methods and variables, what they are highlighting is how each variable is unique for each driver. If you’ve wondered why car insurance is so expensive, knowing the impact of these variables can help you gain a better understanding:

    • Age
    • Credit
    • Location
    • Driving record
    • Company

    Age

    Auto insurance companies see older, more experienced drivers as representing less risk. That’s because more experienced drivers, on average, have fewer accidents and traffic violations. The average cost of car insurance for an 18-year-old, for example, is $5,335 per year for full coverage. For a 19-year-old, the average drops to $3,996 per year. After that, the decrease in cost becomes more gradual, but continues until your 30s and 40s. If you’re under the age of 25 and asking ‘why is my car insurance so high,’ your age is probably still a significant factor.

    Credit

    Credit scores impact many things, including the cost of car insurance. The difference between a good credit score and a low credit score can represent more than $70 a month in increased premiums. While auto insurers (in most states) use these scores differently than lending companies, a high score is still deemed to present less risk than a low score. Credit scores became a tool for auto insurers because research indicates that credit scores can serve as a good predictor of driver responsibility.

    Location

    The cost of car insurance can vary significantly between states. From the cheapest states to the most expensive ones, rates tend to vary from around 30% below the national average to 37% above. Different locations present different risks for drivers and varied prices for repairs, parts, and services. 

    For instance, if you live in the same state that produces the parts for your vehicle, then cost of repairs will likely be lower. Drivers in dense urban areas also pay higher premiums than those in less populated locales, as higher population density translates to an increased risk of two or more cars getting into an accident.

    Driving record

    One of the most significant variables for determining your premiums is your driving record. People with better driving records are, overall, less expensive to insure. They present fewer risks and typically file fewer claims. As a result, having a good driving record generally results in lower premiums. Inversely, a poor driving record can cause a significant increase in rates.

    Trying to determine how much a traffic violation, like a speeding ticket, will increase your premiums is tricky, since it can depend on several factors. The insurance company, your previous driving record, how long you’ve gone without violations, and other factors contribute to the potential rate increase. On average, traffic accidents increase premiums by 34% in the United States.

    Company

    Car insurance companies charge different rates for their insurance products as well. Every company has a degree of discretion over the products offered and the prices associated, based largely on the size of the provider and corresponding degree of risk distribution. Many auto insurance companies specialize in different ways, with variations developing between their policies and their pricing systems. Still, there are norms and averages within the industry that can be useful for comparison. On average, full coverage car insurance within the U.S. costs $1,555 per year. Using this average as a basis and comparing it across company rates, you can evaluate prices, coverage options, and availability within your state to decide which might be a good fit.

    This variance between auto insurance companies is one of the reasons that experts recommend shopping around before deciding on a policy. Getting multiple quotes can be time consuming, but it can also save a significant amount of money in the long term.

    How to prevent your car insurance rates from being high

    After seeing what variables go into determining your auto insurance rates, the next step is to consider how you can use this knowledge to keep your car insurance from being too expensive. Some of these tips may seem obvious, but they are worth discussing. From maintaining good credit to following traffic laws, daily actions can contribute to lower rates.

    • Maintain good credit: A good credit score can go a long way. Car insurance companies in most states may use these scores to assess drivers for financial risk. Having a good credit score can benefit you tremendously from an insurance standpoint.
    • Drive safely and defensively: Driving safely and defensively can prevent accidents and keep your driving record clean, which in turn, leads to lower auto insurance premiums. Driving records are often used as one determinant of a driver’s level of risk to insure.
    • Pay in advance: Among the many payment-oriented discounts offered by providers, the most significant savings is typically achieved by paying in full, or paying in advance, for your policy.
    • Only get the coverage you need: Less coverage means cheaper premiums, but it also means fewer protections for you and your vehicle. Walking this balance can be tricky, but avoiding policies or riders that you won’t use can save money on rates. Be sure to discuss coverage details with your agent to ensure you aren’t overpaying for unnecessary coverages. 

    Steps to take to lower your car insurance rates

    Other than preventing increased rates, you may also be looking for ways to lower rates. If your auto insurance rates are already too high, then these tips may help decrease them. Details vary between drivers, insurance companies and policies, but the steps listed below should be broadly applicable.

    • Research discounts: Many auto insurance companies offer discounts that drivers can easily qualify for: safe driving, paperless billing, vehicle safety features and others fall into this category.
    • Reduce coverage: If the rates have become truly unaffordable, reducing your coverage may be a necessary move. This will lower how much protection your car insurance offers, but it will also lower the premiums. However, you will at least need to meet state minimum levels of coverage.
    • Wait for a reduced rate: For younger drivers, your auto insurance rates will go down with time. That won’t make a difference today, but you can expect a reduction in the cost of your premiums over the next few years.
    • Take a defensive driving course: One of the more common methods for gaining an auto insurance discount is to take a defensive driving course. This shows the insurance company that you now represent less risk and are less likely to have an accident. Specific discounts or rate reductions may apply, depending on the provider.
    • Consider usage-based car insurance: Some auto insurance companies offer policies that charge based on how often, and how far you drive. These policies are less-widely available than many traditional alternatives, but can be an excellent cost-saver for certain drivers.

    The takeaway

    • Many variables go into calculating car insurance rates.
    • Each driver, and their rate, is unique because of these variables.
    • Safety features, a good driving record, and good credit can keep premiums lower.
    • Many auto insurance companies offer discounts to help reduce rates.
    • The cost of car insurance premiums is a reflection of risk assessment.

    When car insurance is too expensive, there are often ways to lower that cost. The first step is to understand what goes into determining your insurance premium. Everything from your credit score to your driving record and your age helps calculate what you’ll pay for coverage. With that understanding, it becomes possible to optimize yourself as a policyholder and pursue the best rates available to you. Beyond that, it’s always a good idea to shop around between auto insurance companies and to look for offered discounts.

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