Why is car insurance so expensive?

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By Sarah Young

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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 rates. You may be asking yourself “why is car insurance so expensive?”

The average cost of an auto policy in typically is higher than all other expenses of a well-maintained vehicle. What causes high car insurance rates?

Why is car insurance so expensive?

The amount you’ll pay for auto 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 every car insurance company 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 teen drivers 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 a younger driver is 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 for car insurance than a 25-year old with the same company.

Location, location, location

Where you live can be one factor making your car insurance so expensive. 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 higher car insurance premiums.

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.

Additional car insurance coverage such as personal injury protection and transportation expense or rental reimbursement coverage can also increase your auto insurance rate.

Your driving record

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

Most often, those who have an bad driving record are considered high-risk drivers and are charged higher car 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, unlike a high risk driver, you’ll have a clean driving history and hopefully the low auto insurance rates that come with it.

Your car

When setting rates, auto 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 car insurance rates, where smaller cars have surprising higher premiums.

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 auto 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 car insurance than those with good credit.

Other factors making your car insurance so expensive

While you may be familiar with some of the items we’ve already mentioned, there may be some factors you’re not aware of that can have an impact on your insurance premium.

Gender

In many states, auto rates differ between male and female drivers. In many cases, premiums were generally lower for 20-year old women than for 20-year old men.

Six states prohibit insurance carriers from considering gender when setting prices: Hawaii, Massachusetts, Pennsylvania, North Carolina, California, and Montana.

Marital status

Your marital status can play a bigger role in your insurance rate than you may realize. Most larger carriers have lower rates for married drivers. Those who are single, separated, divorced, or widowed can have a higher cost when it comes to auto insurance.

Education

Many, but not all carriers take your level of education into consideration when setting your rate. There is research from Consumer Federation of America that shows drivers with less education are charged higher premiums.

Occupation

Similar to their findings on education level impact, CFA found that your occupation can also impact your car insurance rates. Research found that many companies will charge more to customers with blue-collar jobs.

Insurers have said that the reason behind this is that drivers with certain occupations are statistically more like to file insurance claims.

But consumer advocates have challenged the use of both education and occupation, as well as other non-driving factors, for pricing car insurance. Some states have even banned certain factors, or are considering a ban.

Ways to save on your car insurance rates

Even though you don’t have much control over how some carriers rate their policies, there are several ways you can save!

Compare car insurance quotes

Shopping around for the best rate can give you a good idea on how carriers are rating policies. A good rule of thumb when comparing quotes is to start looking around two months prior to the end of your policy term.

Pay in one lump sum. 

Paying for a six-month or 12-month car insurance 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 auto 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 auto insurance company won’t raise your rates until your next policy renewal. If you switch car insurance 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 auto insurance company.

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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