Nearly all drivers in the United States that own a vehicle must have car insurance. Insurance is expensive because of the risks involved and the financial implications. In fact, Americans pay $1,674 per year for their car insurance. It may be difficult to believe that car insurance is so expensive.
Car insurance premiums can be considered a variable expense and account for around 2.44% of your total annual income. There are many factors that can influence the way insurance rates are calculated. There are certain variables that you can’t control, such as claim frequency based upon geographic location, but there are other components you can influence, including vehicle type, insurance history, and driving record.
Why are your car insurance rates so high?
Insurance costs vary greatly from one person to another so comparing your policy with that of a friend will not provide an accurate comparison. Insurance rates are affected by many factors, including your age, location and state-required coverage limits.
Types and levels of coverage
Rates will be influenced by the amount of insurance you have, and what coverage you choose. Each state sets its own minimum coverage requirements for auto insurance policies. While some states only require the minimum coverage for bodily injury or property damage, others may require more coverages like uninsured motorists, medical payments, and personal injury protection (PIP).
South Carolina, for example, requires drivers to have $25,000 bodily injury coverage per individual up to $50,000 per accident. There is also $25,000 property damage coverage and uninsured motorists coverage within the same limits. Maine, on the other hand, requires drivers to have minimum $50,000 bodily injury coverage for each person up to $100,000 per incident along with $25,000 property damage and uninsured motor vehicle coverage within the same limits. A driver will have different rates and coverages depending on the state.
You may also need to have additional coverage or higher limits if you own a lien on your vehicle. This could affect the amount you pay each year.
Insurers will charge you more if you’re deemed a high-risk driver. Your age is an important factor in determining your risk. Statistics show that young drivers are more likely than older drivers to be involved in an accident. Older drivers, especially those over 80, are more likely to be in an accident. An 18 year old may have to pay 2.5x more annually for their insurance than an 25-year-old.
Insurance premiums may vary from one state to another, or even within the same metro due to claims frequency. The average insurance premium will be higher if you live in an area that is more prone to car accidents, thefts or weather damage, which can lead to more claims. For example, the Mississippi average annual premium is $1,782. This is much more than the $1,176 average annual premium for Washington, which is $498 lower than the national average. Drivers in San Francisco might be charged a lower rate than those in Los Angeles.
How to reduce your car insurance
Moving to another state might not be an option for you and your age may limit your ability to save money. Also, your premium will be determined by other factors. You can reduce your car insurance by improving your credit rating, driving safely and looking for discounts. You can compare rates from different insurance companies in order to find the best deal. You can get quotes for several vehicles to determine which one will offer the lowest premium.
Credit score improvement
According to the Insurance Information Institute (III), insured drivers who have lower credit scores file more claims, and are thus a greater insurance risk. Your insurance premium may be affected by how high your credit score is depending on where you live, what your insurance company is, and how much your score has improved.
Rates are determined by different companies. Just because one company considers your credit more heavily doesn’t mean that another company will. California, Hawaii, Massachusetts, and Massachusetts don’t even consider your credit. Each provider calculates premiums differently so it is a good idea to shop around for the best price, even if your credit is not as good or high as average.
Good driving habits are important
While it varies from one state to the next, driving violations can result in up to $730 per year in rate increases on your policy. A clear driving record and good driving habits are the best ways to increase your insurance premium. You can expect to see an increase in your premium if you’ve been cited for speeding or have had an accident.
Defensive driver courses are offered by some states that can reduce the points on your license. If the course is approved and accepted by your insurance company, it may also lower your premium. Some companies also offer accident forgiveness plans, which would prevent your auto insurance from increasing in the event you are involved in an accident.
Although discount availability can vary by state and insurer, auto discounts are the fastest way to lower your premium, regardless of your driving record, age and location. Ask about any discounts that may be available to your existing or new policy when you get a quote. There are several types of discounts available for car insurance, including:
- Multi-policy Discounts
- Multi-car discounts
- Good driver discounts
- Good student discounts
- Homeowner discounts
- Loyalty Discounts
- Accident-free discounts
- Discounts on new cars
- Safety restraint and anti-theft discounts
- Hybrid car discounts
- Military and employee discounts
- Auto-pay or full pay discounts
- Discounts on defensive driving
- Online/paperless Discounts
- Low mileage/usage discounts
- Senior discounts
Knowing what factors contribute to your insurance costs can help you make financial decisions, drive more safely and choose the right provider. While some factors are out of your control, there may be areas you can creatively address to lower your driver’s risk in order to get cheaper policies.