Why Is My Car Insurance So Expensive?
Why Is My Car Insurance So Expensive?
Bundle & Save
If your car insurance is too expensive, a number of common factors could explain your high rates. Common causes of overly expensive insurance rates include your age, driving record, credit history, coverage options, what car you drive and where you live. Anything that insurers can link to an increased likelihood that you will be in an accident and file a claim will result in higher car insurance premiums.
See below for the most common things that raise insurance rates, and what you can do to bring your costs down.
Factors that can make car insurance expensive
Factors that can make car insurance expensive
Insurance companies set rates for every driver based on how likely they think the driver is to make a claim and how expensive that claim will be. If your insurer thinks you're likely to make a claim, your rates will go up. Insurers consider many factors when setting rates, but here are some of the most common reasons some drivers pay so much for car insurance.
Your insurance company
It may seem obvious, but insurance rates vary dramatically among insurance companies, and if you're buying a policy from an expensive insurer, you could be paying much more than you need to be.
The average price of insurance is $438 for six months of basic coverage for a good driver among the top 10 insurers nationwide. However, that exact same driver could be paying as little as $309 from State Farm or as much as $625 from Allstate. Switching from Allstate to State Farm would bring that driver's price down by 51%.
The only way to guarantee you're paying the best price available to you is to shop around and collect quotes from multiple insurance companies, which you can do by getting a free online insurance quote.
Your age (and your gender)
Younger drivers pay much more for car insurance than older drivers — car insurance for young drivers is 4.5 times more expensive than for adult drivers in their mid-30s. The main reason for these high rates is that young drivers are statistically more likely to get into car accidents that result in costly claims for insurers.
Young men are particularly likely to pay a lot for car insurance. A 20-year-old man pays about 16% more than a woman of the same age. The difference evens out as drivers get older, and older women actually pay slightly more than men of the same age — though only by a few dollars a month.
How to save: One of the best ways for younger drivers to lower their premiums is to share a policy with an older family member. Doing so can reduce your overall insurance bill by 58%. Younger drivers can also qualify for good student discounts or take additional training courses to bring rates down even more.
Where you live
The cost of car insurance varies wildly across the United States. Residents of the most expensive state for car insurance, Michigan, can expect to pay six times more for coverage than people who live in Maine. There are lots of factors that impact insurance rates in a state, including minimum coverage amounts, the number of uninsured drivers and even how well-maintained roads are.
The cost of insurance can vary within a state or even within a city, too. If you live in an area with high rates of car theft, or with narrow roads that lead to a lot of accidents, you may pay more than you would elsewhere. For example, there's a price difference of $618 per year between the cheapest and most expensive ZIP codes for car insurance in San Francisco.
How to save: We don't necessarily recommend moving to a new neighborhood, city or state just to reduce your car insurance bill. But if you're already thinking of moving, it can be worthwhile to get a few sample insurance quotes to understand how rates will differ in your new home.
Your car insurance coverage options
The more car insurance you buy, the more you can expect to pay. A full coverage policy, which includes comprehensive and collision insurance, costs 170% more in annual premiums than one with liability coverage only. Comprehensive and collision insurance cover the cost to repair or replace your vehicle if it is damaged, less your deductible — which is the amount you have to pay out of pocket before your coverage kicks in.
Policies that include high liability limits as well as comprehensive and collision coverage with low deductibles are particularly expensive. The cost of a policy such as this is $1,053 more per year compared to the cost of a liability-only policy.
How to save: You have total control over the coverage on your policy, so you can easily reduce your limits — so long as you're above the legal limit and meet any requirements your lender has. But if you're in an accident, you'll be responsible for any claim that goes over your insurance limits.
Your driving record
Drivers with recent accidents or traffic violations on their records usually pay significantly higher car insurance rates than drivers with clean records. Adult drivers who were recently at fault in a crash pay 42% more for auto insurance than those with no accidents or violations. The reason for this discrepancy in rates is that these drivers are statistically more likely to be involved in a future accident.
Those who have been convicted of a serious traffic violation, such as DUI, may find themselves paying higher rates for auto insurance because they have to get SR-22 insurance. This is a type of insurance policy for high-risk drivers, for which they are required to have their insurer file an SR-22 form on their behalf that attests that they have the required minimum car insurance coverages.
How to save: Some states allow you to reduce the effect of a ticket on your record by taking a defensive driving course. Unfortunately, the only way to reduce your rates after a crash is to wait.
Insurers consider what kind of car you have when setting rates. Some cars are more likely than others to keep you protected in a crash, resulting in lower rates. Meanwhile, a very fast or powerful car may encourage aggressive reckless driving, resulting in higher rates.
Bigger, safer cars like minivans and small SUVs tend to have the most affordable insurance, while smaller cars have surprisingly high rates. This could be because smaller cars tend to sustain more damage in a crash.
Cars with the following qualities tend to be more expensive to insure:
- Faster/more powerful
- More expensive
How to save: If you have a car that has particularly high rates, like a luxury vehicle, a convertible or a muscle car like a Ford Mustang, switching vehicles may result in a big savings on your insurance bill.
Your credit score
Car insurance companies sometimes consider your credit score when setting your premiums, and drivers with poor credit or no credit history are often charged more for insurance. The reason drivers with bad credit pay more for car insurance is the same as the reason for other rating factors: They are statistically more likely to file a claim against their insurance than those with good credit.
However, several states, including California, Hawaii and Massachusetts, have banned the use of credit scores to calculate auto insurance rates. If you live in one of these states, your rates will not be affected by your credit score.
How to save: It's possible that your credit score is being dragged down by incorrect or false entries on your credit reports, so review your credit reports regularly to make sure they are accurate. Beyond that, the most important thing is to pay your credit card and other bills on time. See here for more tips on how to boost your credit score.
More ways to save on insurance
If your car insurance is too expensive, there are a number of steps you can take to lower your rate. The most important thing you can do is shop around for quotes from multiple insurance companies: Just because one company is charging you high prices doesn't mean you won't be able to find a great price elsewhere.
Adult drivers can drastically reduce their expensive car insurance rates by comparing quotes to find the cheapest company and utilizing discounts. Additionally, young drivers can get cheaper rates by opting to be added to their parent's policy instead of getting their own.
Compare quotes from multiple companies
The insurer you choose has a huge effect on what you pay for car insurance. The insurer with the highest rates can be as much as 81% more expensive than the cheapest insurer for identical coverage. Because of this discrepancy, we recommend that you compare quotes from multiple companies to get the cheapest car insurance rates.
Difference between the cheapest and most expensive insurer
|Adult liability only||$698||$689||$956||39%|
|Adult full coverage||$988||$1,209||$1,705||73%|
|Adult with high limits and low deductibles||$1,466||$1,773||$2,264||54%|
|Adult bad driving record and full coverage||$1,474||$2,671||$2,332||81%|
|Young driver liability only||$2,780||$4,812||N/A||73%|
Look for discounts
Most car insurance companies offer their policyholders a reduction of their car insurance premiums for fulfilling certain criteria. Keep in mind that the amount you can save and how you qualify will vary by insurer.
Common car insurance discounts
How you typically get it
|Defensive driving||Take a defensive driving class||10% to 15%|
|Bundling||Purchase multiple insurance policies with one company||5% to 18%|
|Vehicle anti-theft||Equip your car with an anti-theft device, such as a GPS vehicle tracker||5% to 15%|
|Good student||Be a full-time student with a GPA of 3.0 or better||5% to 25%|
|Occupation||Be a member of a professional organization, such as Freelancers Union||2% to 10%|
Make your insurance right for you
Even after getting discounts and shopping around for the best rates, you can further lower your monthly cost:
- Pay in one lump sum. Paying for a six-month or 12-month policy up front and setting your policy to auto-renew can give you a discount. It also prevents your insurer from raising your rates during that period.
- Avoid switching companies too often. Some insurance companies penalize customers who switch companies every year. A good rule of thumb is to compare rates every two to three years to make sure you're getting the best deal.
- Watch out for price optimization. If you've been with the same company for years, you might not be getting the best deal anymore, which is known as price optimization or the loyalty penalty. Car insurers can offer lower rates to attract new customers. Shop around for quotes every few years, or ask your insurer if it can give you any new customer discounts to prevent you from switching.
- Don't switch companies if you just got a ticket. If your risks have recently increased, such as if you got a ticket, your credit score dropped significantly or you now have a longer commute through a bad neighborhood, your current insurance company won't raise your rates until your next policy renewal. If you switch companies now, expect to pay higher rates to account for the higher risk.
ValuePenguin's analysis used insurance rate data from Quadrant Information Services. These rates were publicly sourced from insurer filings and should be used for comparative purposes only — your own quotes may be different.
Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.