Why Is Car Insurance So Expensive?

Article Summary:

Your car insurance could be expensive for a variety of reasons, including your location, driving record, demographics, and more.

Just about every state in the U.S. requires drivers to have at least some car insurance to protect both themselves and others in an accident. Unfortunately, auto insurance can be expensive. In 2021, the average annual car insurance premium was $1,342, which comes to nearly $112 per month. And if you have certain risk factors, you might find that your rates are even higher.

If you’re wondering why it’s so pricey, there are several factors that could be the culprit. And the good news is that, in many cases, there are changes you can make to reduce your car insurance costs.

Why is car insurance so expensive?

There are many different factors that affect your car insurance rates. As a result, if you’re overpaying for your premiums, there are several reasons why that could be the cause.

Your location

Location is one of the most important factors that determine your auto insurance. In fact, in a 2019 survey, the difference in the average car insurance rates in the cheapest and most expensive states was nearly $900 per year.

There are several factors related to your state that can impact your insurance rates. In states with more uninsured drivers or a higher rate of car accidents, drivers may pay higher insurance costs. Weather patterns can also play a role, as inclement weather can increase car insurance claims. Finally, your state’s minimum required coverage can affect your insurance rates.

Not only does your location/state affect your insurance rates, but so does your city, ZIP code, or even neighborhood. If you live in an area with a higher rate of car theft, for example, your insurance rates will be likely to increase.

Your driving history

It probably comes as no surprise that your driving record will affect your car insurance. Those with clean driving records generally have access to the lowest insurance rates, while those with violations on their driving records are likely to pay higher premiums.

Of course, certain driving violations will impact your rates more than others. Failing to wear a seatbelt, or driving through a stop sign may have only a minor impact. On the other hand, violations such as driving under the influence or causing a car accident will significantly increase your premiums.

Drivers may also pay higher premiums if they’re required to have an SR-22, which is a certificate that high-risk drivers must file with their states to prove financial responsibility (i.e., car insurance coverage).

Your age and gender

Your personal demographics are another factor that affects your insurance rates. First, your age is an important consideration. Generally speaking, young drivers are more likely to get into accidents or have moving violations. As a result, they usually pay higher insurance rates. Drivers generally find their rates decrease by their mid-20s.

Your gender can also impact your auto insurance rates. Men tend to be higher-risk drivers. As a result, they usually pay more for car insurance.

Your insurance company

Not all car insurance companies charge the same premiums for the same drivers. Some offer average premiums that are higher or lower than the national average. Certain insurance providers have cheaper coverage across the board, while others have cheaper coverage in certain states.

You may also find that certain insurance providers are more favorable for certain types of drivers. For example, one insurer may have the lowest rates for low-risk drivers, while others may have the lowest rates for drivers with accidents on their driving records.

Pro Tip

The best way to find out which car insurance company will offer you the best rates is to shop around. You can do this by getting quotes from multiple insurance companies, enlisting the help of an insurance broker, or using an online insurance marketplace.

Your coverage amount

The type and amount of coverage you buy can dramatically increase or decrease your insurance premiums. First, your rates will depend on the type of coverage you have. The two most common options are minimum liability insurance and full coverage insurance.

When you have minimum liability insurance, you have only as much insurance coverage as your state requires. Minimum liability coverage amounts range from $10,000 per person and $20,000 per accident for bodily injury coverage to $50,000 per person and $100,000 per accident.

The other option when you’re buying auto insurance is full coverage. In addition to liability insurance, full coverage usually includes comprehensive and collision coverage, which are designed to pay for damages to your vehicle, not just others’ vehicles. Not surprisingly, full coverage insurance is more expensive.

No matter whether you have liability coverage or full coverage insurance, the amount of coverage you buy can also affect your rates. Generally speaking, the more coverage you buy, the more expensive your policy will be.

Your credit score

You may be surprised to learn that your credit score can affect your car insurance rates. Research has shown that credit history is a predictor of insurance claims. In other words, drivers with poor credit are more likely to file insurance claims.

Unfortunately, this increased risk usually results in higher car insurance premiums. Drivers with poor credit may see their premiums increase, while drivers with excellent credit will usually have access to the best rates.

Pro Tip

A handful of states ban car insurance companies from using your credit score as a factor for determining car insurance. Those states are California, Hawaii, Maryland, Massachusetts, Michigan, Oregon, Utah, and Washington.

Your car

The type of car you drive and its age are both factors car insurance companies use to set auto insurance premiums. First, certain types of cars may result in higher auto insurance rates if their drivers tend to engage in higher-risk driving habits. Not only that, but luxury cars are more expensive to insure simply because they are more costly to replace if they’re totaled.

In addition to the type of car you drive, its age is also important. New cars are more expensive to insure because of the price to replace them. On the other hand, older cars with lower value are cheaper to insure.

Your deductible

Your deductible is the amount you must pay out of pocket for claims before your insurance coverage kicks in. For example, if you have $1,000 of damage in an accident, you’ll pay the first $500, and your insurance company will pay the other $500.

There’s an inverse correlation between your insurance deductible and car insurance premiums. The higher your deductible, the lower your premiums. This is because there’s a lower risk for the insurer. On the other hand, the lower your deductible, the higher your premiums.

Pro Tip

Some of the factors above are outside of your control, but others you can change to reduce your insurance rates. Another way to save on your premiums is to take advantage of the car insurance discounts that your insurer offers. Discounts are available for bundling your policy, having certain vehicle safety features, taking a defensive driving course, and more.

Other factors that impact insurance rates

Though the above factors affect each individual’s car insurance quote, there are other factors that affect the industry as a whole.

One important factor that can increase everyone’s insurance rates is inflation, which is the rise in the cost of goods and services. As the cost of doing business rises, insurance providers and other companies must increase their prices. So, like most things, the cost of car insurance rises over time.

Car insurance rates may also increase based on supply chain and labor shortages in the auto maintenance industry. When there’s a reduced supply of car parts, or labor becomes harder to come by, the cost of repairs increases. As the cost of car repairs increases, the cost of auto insurance must rise as well, since claims become more costly for insurers.


Which type of car insurance is the cheapest?

The cheapest way to buy car insurance is to purchase your state’s minimum required coverage, which is usually only bodily injury and property damage liability coverage.

Which car insurance plan is best?

The best car insurance policy for you depends on several factors, including your financial situation and your vehicle. If you have an older vehicle that you could easily afford to replace, minimum liability coverage might be enough. But if you have a newer car, or couldn’t replace it out-of-pocket, full coverage is probably a better option.

Key Takeaways

  • In 2021, the average price of car insurance in the U.S. was $1,342 per year, though the rate you’ll pay depends on a variety of factors.
  • Certain demographic factors affect your insurance rates, including your age, gender, and location.
  • Factors related to your policy can also affect insurance rates — those factors include your coverage type and amount, your deductible, and your insurance company.
  • In addition to avoiding certain risk factors that may increase your insurance rates, you can save on your premiums by taking advantage of discounts your provider offers.
  • Other factors can increase insurance rates across the board, including inflation, supply chain issues, and labor shortages.
View Article Sources
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  2. FAQs About Auto Insurance — North Carolina Department of Insurance
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  7. How Does Distance From Work Affect Insurance Rates? Plus 6 Other Key Factors to Consider — SuperMoney
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  9. Can I Insure a Car Not in My Name? — SuperMoney
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  11. Best Auto Insurance Companies | July 2022 — SuperMoney