Why is car insurance so expensive?

Why is car insurance so expensive?
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By Sarah Young  |   Last updated on October 25th, 2022 at 10:34 am

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Everyone knows how quickly car expenses can add up. In fact, buying a car is one of the largest purchases most consumers will make in their lifetimes. But, the costs don’t stop once the car is purchased. Maintenance costs, repairs, and the ever-changing cost of gas all add up. Then, you have the price of car insurance.

The average cost of an auto policy in typically is higher than all other expenses of a well-maintained vehicle. Why is car insurance so expensive?

Why is car insurance so expensive?

The amount you’ll pay for car insurance is impacted by a number of very different factors—from the type of coverage you have to your driving record to where you park your car. While not all companies use the same parameters, here’s a list of what commonly determines the bottom line on your auto policy.

Factors that make car insurance so expensive

Age

It probably comes at no surprise that teens are astronomically expensive to insure, especially compared to middle-aged drivers.

Inexperience, as well as riskier driving habits, make teens more likely to get into car accidents. According to the Centers for Disease Control, the risk of car accidents among those aged 16-19 is higher than any other age group.

Common risk factors for teens:

  • Inexperience. Teens are more likely than other drivers to underestimate dangerous situations on the road.
  • Distracted driving. One in three teens who text admit to texting while driving, according to the National Highway Traffic Safety Administration.

Since teens are more likely to be involved in a car accident compared to older drivers, they are more expensive to insure. Experienced drivers in their mid-30s to late-50s typically have greater driving skills and lower accident rates.

Once drivers enter their 60s, however, this trend begins to reverse and slower reflexes impact driving. Oftentimes, when the risk of being in an accident increases with age, insurers will adjust the rates. An 80-year old driver may end up paying more than a 25-year old.

Location, location, location

Location is one of the primary factors affecting car insurance rates. Average premiums vary dramatically by state because each state has different regulations. Average rates in Michigan, for example, can be more than twice the average rates in Ohio. Rates also vary significantly by ZIP code and neighborhood. For instance, rural drivers pay less than those in cities, where vandalism, theft and crashes are more common, according to the Insurance Information Institute.

Rating factors based on location don’t necessarily have anything to do with your personal driving habits, but rather the driving habits of those around you. If your zip-code is one that sees a lot of car accidents or traffic violations, it is riskier to insure a vehicle in that area, which causes your insurance rates to go up.

Your coverages

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.

If you are leasing or financing your vehicle, you are probably required to carry collision and comprehensive coverage. However, if you own your vehicle outright, you’re likely a good candidate for a liability-only policy. Be careful, though. Without comprehensive or collision coverage on your vehicle, the cost of repairing your vehicle should it be damaged can fall solely on you.

Your driving record

Your driving history, which includes any previous accidents, speeding tickets, and DUIs, gives insurance carriers an indication of your risk and how likely you are to file a claim.

Most often, those with imperfect driving records are considered high-risk and are charged higher insurance rates. For example, drivers who have been caught driving under the influence typically have to pay 30 percent more for their car insurance policy compared to drivers with a clean driving record. If you can steer clear of accidents and violations for five years, you’ll have a clean driving record and hopefully the low rates that come with it.

Your car

When setting rates, insurance carriers consider what kind of car you have.  Some cars are more likely than others to keep you safe and protected in the event of an accident. However, if your vehicle is very powerful or fast, statistically this leads to more aggressive or reckless driving, resulting in higher rates.

The safest and largest vehicles, like minivans and small SUVs tend to have the lowest insurance rates, where smaller cars have surprising high rates.

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.

Ways to save

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 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.

Don’t switch 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.

Check with your carrier for any discounts you aren’t utilizing. 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 discounts include:

  • Bundling
  • Safe car
  • Good student
  • Telematics
  • Safe driver

And that’s just the beginning. If you’re looking to keep more of your hard earned money where it belongs – i.e. in your pocket – find out how exactly much you can save with Elephant by getting a quote. You may be surprised by what you’ll find!

This article is intended for informational purposes only. It does not replace or modify the information contained in your insurance policy and may not reflect the official policies of Elephant Insurance or current developments.

 



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