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Why Is Car Insurance So Expensive?

Why Is Car Insurance So Expensive?
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When you own a vehicle, a few expenses go along with that, such as fuel costs, repairs, and car insurance. Unfortunately, there isn’t much you can do to change how much it owns to drive your vehicle when it comes to fuel or repairs. But with car insurance, you can shop around with other insurance providers to get the best deal for your money. It’s surprising how much prices can change from one provider to the next for the same coverage on the same driver for the same vehicle.

If you’ve noticed your rates have increased over the past year or so, consider taking some time to request quotes from a few other insurance providers or talk to your agent about why you see an increase. There are a lot of factors that go into calculating your rates, and one of these factors may have changed significantly. Either way, if your rates are on the rise, it’s time to ask: why is car insurance so expensive?

What Factors Affect Your Car Insurance Rates?

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Several factors go into determining your car insurance premium, and a few of them can cause a significant change in your car insurance costs. These factors include:

  • Driving record. Whether you have a clean driving record, minor traffic violations like speeding, or significant traffic offenses, including a DUI, play a vital role in determining your car insurance rate.
  • Accident record. If you’ve been involved in multiple accidents, even when you’re not at fault, it can negatively impact your car insurance rate.
  • Insurance history. If you let your insurance lapse, even for a short time, it can affect your current costs.
  • Credit score. Poor credit scores indicate late or nonpayments of other bills, making you a higher risk to insurance companies.
  • ZIP code. Where you live can affect your insurance rate, especially if you live in an area with lots of accidents.
  • Type of vehicle. Value and model can impact your rate, especially if you drive a sports car or a vehicle that car thieves often target.
  • Type of coverage. Having full coverage with comprehensive, collision, liability, or uninsured and underinsured coverage can raise or lower your premium.
  • Deductible amount. Selecting a lower deductible will mean less out-of-pocket expenses at the time of an accident but more out-of-pocket each month for your premium.
  • Driver’s age. Younger and senior drivers tend to pay more for insurance premiums than 30-year-old drivers.

Inflation is also a key factor in why car insurance is so expensive. According to U.S. News & World Report, the average cost of car insurance is $1,321 per year.

Does the Insurance Company Impact Your Annual Rates?

Simply put, yes. While U.S. News & World Report shares that the national average cost is $1,248 for minimum coverage, that number can change drastically depending on your insurance provider. Their findings show the following minimum coverage insurance costs by company, using the same driver, same driving history, and same vehicle.

  • USAA: $823
  • Geico: $1,015
  • State Farm: $1,086
  • Travelers: $1,168
  • Progressive: $1,235
  • Nationwide: $1,294
  • American Family: $1,402
  • Farmers: $1,521
  • Allstate: $1,682

As you can see, the same coverage issued by different providers has an almost $800 range, making it vital to compare insurance companies before signing off on your coverage.

How Can You Save Money on Car Insurance?

One of the most significant ways to save money on car insurance is to shop around with various companies to find the best deals. Different insurance companies are best suited for younger drivers, senior drivers, drivers with poor credit scores, drivers with minor traffic violations, and drivers with serious offenses such as DUI. Finding the right company to fit your specific needs and driving profile can save you money.

Carry Minimum Coverage

You can also save money by only carrying the coverage you need. Almost every state mandates that you carry liability insurance, so you need to have that in your insurance policy. Some states also require personal injury protection or medical payments, so check with your insurance agent to verify the minimum insurance requirements for your state.

If you drive an older vehicle with high miles or a vehicle that you own outright, liability insurance could be enough coverage for your needs. Collision and comprehensive are beneficial if you have a loan or lease on your vehicle because the coverage pays for damages to your vehicle to maintain the value of your vehicle.

Look for Discounts

Many auto insurance companies offer discounts if you also have your homeowner’s or renter’s insurance through them. Companies often apply this discount to both policies, saving you money in two ways. Other discounts include good driver, good student, consistent coverage, defensive driving course completion, vehicle safety features that include air bags and anti-lock brakes, and usage-based discounts that track your driving habits to determine a discount.

Drive Safely

It’s no secret that traffic violations and car accidents increase your overall automobile insurance policy, so driving safely and avoiding these infractions can help you save money on your car insurance.

Pick a Vehicle That’s Cheap To Insure

Moderately priced vehicles with plentiful safety features tend to be cheaper to insure than other high-cost, flashy vehicles. Talk to your insurance agent about the options for vehicles that are cheaper to insure before purchasing your next vehicle.

Increase Your Deductible

If you carry collision or comprehensive insurance, you’ll have a deductible. A deductible is an amount you agree to pay out-of-pocket towards any repair or replacement should your vehicle become damaged. When you opt for a higher deductible, you’ll lower the overall cost of your annual insurance premium.

Improve Your Credit Score

Only four states don’t allow car insurance companies to factor your credit score into your annual premium calculation, so improving your credit score can help lower your costs. Be sure to pay your bills on time, keep credit card balances at a minimum, and only open new accounts as necessary to improve your credit score.

Car insurance is an expense that you should review annually to ensure you’re getting the best deal. That way, you can stop asking, “Why is car insurance so expensive?” and instead know that you’re getting the best value for your money.

FIXD Research Team

At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.

We’re here to help you simplify car care and save, so this post may contain affiliate links to help you do just that. If you click on a link and take action, we may earn a commission. However, the analysis and opinions expressed are our own.

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About the Author

FIXD Research Team

FIXD Research Team

At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.

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