January 10, 2022

Why Is Car Insurance So Expensive?

Are there any ways to lower premiums?

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Despite the fact that you may be driving less due to the COVID-19 pandemic, you may have seen your car insurance premium increase. Why is this the case, and is there any way to lower your premium? In this article, we’ll explain the factors that affect car insurance costs and what you can do to lower your cost.

Why Is Car Insurance So Expensive?

The cost of car insurance is dependent on many factors, from your state’s auto insurance requirements to your gender (men pay more for auto insurance, believe it or not). Here are some possible reasons why car insurance is so expensive.

Credit

People with poor credit pay more for car insurance than those with good credit. However, if you live in Hawaii, Michigan, California, or Massachusetts, then you can’t be penalized for having bad credit, as companies are banned from using credit-based insurance scores to provide quotes in these states.

TIP

If you want to avoid a hard inquiry on your credit report, which will lower your credit score, check out our no credit check quotes.

Location

The cost of your auto insurance is affected by both the state you live in and the type of area you live in (city, suburban, or rural). In general, car insurance costs more in cities versus suburban/rural areas due to higher rates of vandalism and theft. People in cities are statistically more likely to be involved in an accident that may require an insurance claim, which can lead to a higher premium.

On top of that, every state has varying auto insurance minimum requirements. While some states like Florida have relatively sparse auto insurance legislation, requiring only $10,000 of coverage for property damage and personal injury protection,1 other states like Michigan have more coverage requirements and higher limits. That’s why car insurance is so expensive in Michigan. That state requires:

  • $50,000 of bodily injury liability per person
  • $100,000 of bodily injury liability per accident
  • $1 million of property damage liability for accidents within Michigan
  • $10,000 of property damage liability for accidents outside of Michigan2

More coverages and higher limits mean higher premiums. Learn about the auto insurance requirements in your state in our guide to auto insurance.

Deductible

Insurance rates also vary based on your plan’s deductible, or the amount of money you pay out of pocket before your insurance coverage kicks in. If you have a low deductible, that means your premiums will be higher. To lower the cost of your premium, raise your deductible.

Coverage

Aside from your state’s minimum coverage, you may have added some supplemental coverages like rental reimbursement or classic car coverage. The more coverages you add on, the more expensive your premiums will be.

Vehicle

The type of vehicle you own, along with its vehicle safety rating, affects the cost of car insurance.

Type of vehicle Average annual cost of full coverage insurance in 2020
Small sedan $1,342
Large sedan $1,264
Medium sedan $1,245
Half-ton/crew pickup (4WD) $1,242
Electric vehicle $1,227
Hybrid vehicle $1,212
Medium SUV (4WD) $1,118
Minivan $1,096
Small SUV (FWD) $1,0873

As you can see, sedans are the most expensive type of car to insure, followed by pickup trucks.

FYI

The average annual cost of full coverage car insurance was $1,202 in 2020.

The vehicle’s safety rating also matters. Safer cars are cheaper to insure, as they tend to protect their occupants better. Another factor is the cost of the car. More expensive cars are often more expensive to insure because they’re more costly to repair.

Driving Habits

If you drive a lot, you have more opportunities to be involved in an accident and thus make a claim. Therefore, you will pay more for insurance. You can save money by carpooling or taking public transportation to work, shortening or eliminating your commute.

Driving History

Have you had accidents, DUIs, tickets, or license suspensions in the past? Then you’ll most likely have higher insurance rates. However, many insurance companies offer discounts for being accident-free, so if you have a good driving history, you could be rewarded with an affordable premium.

Driving Experience

New drivers, mostly those under the age of 25, pay more for auto insurance. That’s why the cost of auto insurance for teens is the highest. But don’t worry; rates will start to decrease when you turn 25 if all else is equal.

Gender

Believe it or not, males pay more for car insurance than females, except in the seven states where gender discrimination in determining auto insurance rates is explicitly banned (California, Hawaii, Michigan, Massachusetts, Pennsylvania, North Carolina, and Montana).4 Why? Because men have statistically higher rates of driving fatalities, DUIs, and incidents of being stopped by the police. Here are some alarming statistics:

  • More DUIs: In 2019, 206 percent more men than women were arrested for DUI.5
  • More fatalities: Men are 145 percent more likely than women to die in traffic accidents.67
  • Stopped by the police more often: In 2018, the year the Bureau of Justice Statistics (BJS) last released its police contact data, men were 32 percent more likely to be stopped by the police than women.8 While the BJS doesn’t track numbers of tickets after these stops, it’s safe to assume that more stops mean more tickets, fines, and convictions, which will likely increase auto insurance premiums.

Rising Rates

Car insurance rates are rising in general, according to the latest federal data. From 2017 to 2018, prices increased by an average of nearly 5 percent across the country. From 2014 to 2018, costs increased by over 20 percent!9

It’s clear that, much like other costs of living like healthcare costs, auto insurance rates will increase every year. Learn more about the cost of auto insurance in our auto insurance FAQs.

Recap

If you want to lower the cost of auto insurance, we recommend using car insurance discounts like going paperless, bundling different policies with one provider, or dropping coverages. While the average cost of car insurance increases every year, there are ways you can make this cost as low as possible. Most importantly, be sure you’re comparing quotes from car insurance companies before deciding on a policy.

Citations

  1. Florida Insurance Requirements. Florida Highway Safety and Motor Vehicles. (2022).
    https://www.flhsmv.gov/insurance/

  2. Michigan’s Auto Insurance Law Has Changed. Department of Insurance and Financial Services. (2020, Jul 1).
    https://www.michigan.gov/documents/difs/Auto_Insurance_Guide_448003_7.pdf

  3. How Much Does it Really Cost to Own a New Car? AAA. (2020, Dec).
    https://newsroom.aaa.com/wp-content/uploads/2020/12/2020-Your-Driving-Costs-Brochure-Interactive-FINAL-12-9-20.pdf

  4. Women pay more on average than men for car insurance, despite getting into fewer accidents, study finds. CNBC. (2021, Apr 19).
    https://www.cnbc.com/2021/04/19/women-pay-more-than-men-for-car-insurance-in-21-states-study-finds.html

  5. 2019 Crime in the United States. Federal Bureau of Investigation. (2019).
    https://ucr.fbi.gov/crime-in-the-u.s/2019/crime-in-the-u.s.-2019/topic-pages/tables/table-39

  6. Persons Killed, by Person Type – State : USA, Year : 2019. United States Department of Transportation. (2019).
    https://www-fars.nhtsa.dot.gov/People/PeopleAllVictims.aspx

  7. Highway Statistics 2019. United States Department of Transportation. (2019).
    https://www.fhwa.dot.gov/policyinformation/statistics/2019/

  8. Traffic Stops. Bureau of Justice Statistics. (2022).
    https://www.bjs.gov/index.cfm?tid=702&ty=tp

  9. Auto Insurance Database Report 2017/2018. National Association of Insurance Commissioners. (2021, Feb).
    https://content.naic.org/sites/default/files/publication-aut-pb-auto-insurance-database.pdf