Why does auto insurance cost so much?- insurance Everyone knows that car costs can add up quickly. In fact, buying a car is one of the most expensive things most people will ever buy. But the costs don’t end when you buy the car. Costs like repairs, maintenance, and the constantly changing price of gas add up. Then there’s the cost of auto insurance.
On average, the cost of an auto policy is more than all the other costs of keeping a car in good shape. Why does auto insurance cost so much?
Why does auto insurance cost so much?
How much you pay for car insurance depends on a lot of different things, such as the type of coverage you have, your driving record, and where you park your car. Even though not all companies use the same factors, here are some of the most common ones that affect the price of your auto policy.
Reasons why car insurance costs so much
Teens are a lot more expensive to insure than middle-aged drivers, which probably doesn’t come as a surprise.
Teens are more likely to get into car accidents because they are less experienced and take more risks when they drive. The Centers for Disease Control say that 16–19-year-olds are more likely than any other age group to be in a car accident.
Common things that put teens at risk:
Inexperience. Teen drivers are more likely than other drivers to underestimate how dangerous a situation is on the road.
Driving while distracted. The National Highway Traffic Safety Administration says that one in three teens who text say they have texted while driving.
Teen drivers are more likely to get into an accident than older drivers, so it costs more to insure them. Most drivers in their mid-30s to late-50s have better driving skills and are less likely to get into accidents.
But once drivers reach their 60s, this trend starts to change because their reflexes get slower. When the risk of getting into an accident goes up with age, insurance companies often change the rates. A driver who is 80 years old may end up paying more than a driver who is 25 years old.
The place, the place, the place
One of the main things that affects how much car insurance costs is where you live. Average premiums change a lot from state to state because each state has its own rules. The average rates in Ohio can be more than twice as high as the average rates in Michigan. Rates also change a lot from one ZIP code or neighborhood to the next. The Insurance Information Institute says that drivers in rural areas pay less than those in cities, where vandalism, theft, and car accidents happen more often.
Rating factors that are based on where you live have less to do with how you drive and more to do with how other people in your area drive. If your zip code has a lot of car accidents or traffic tickets, it is more risky to insure a car there, so your insurance rates will go up.
What you cover
If you buy more car insurance, you can expect to pay more. Comprehensive and collision insurance are included in a full coverage policy, which costs 170% more in annual premiums than a liability-only policy. Comprehensive and collision insurance cover the cost of fixing or replacing your car if it gets damaged, minus your deductible. Your deductible is the amount you have to pay out of pocket before your insurance starts to pay for repairs or replacements.
If you are leasing or financing your car, you are probably required to have collision and comprehensive coverage. But if you own your car outright, you might be able to get away with a liability-only policy. But, be careful. If you don’t have comprehensive or collision coverage on your car, you may have to pay for all the repairs yourself if it gets damaged.
Your record as a driver
Your driving record, which includes any accidents, tickets for speeding, and DUIs, tells insurance companies about your risk and how likely it is that you will file a claim.
Most of the time, people with bad driving records are seen as high-risk and have to pay more for insurance. For example, drivers who have been caught driving under the influence usually have to pay 30 percent more for car insurance than drivers with a clean driving record. If you don’t get in any accidents or get any tickets for five years, you’ll have a clean driving record and, hopefully, lower rates.
Insurance companies think about what kind of car you have when they set your rates. Some cars are more likely to keep you safe in case of an accident than others. But if your car is very powerful or fast, statistics show that you are more likely to drive aggressively or carelessly, which means your rates will be higher.
Most of the time, the safest and biggest cars, like minivans and small SUVs, have the lowest insurance rates. Smaller cars, on the other hand, have rates that are surprisingly high.
Your credit rating.
When setting your rates, car insurance companies sometimes look at your credit score. Drivers with bad credit or no credit history often pay more for insurance. People with bad credit pay more for car insurance for the same reason that people with other rating factors pay more: Statistics show that they are more likely to file an insurance claim than people with good credit.
How to save.
Pay in one lump sum. You can get a discount if you pay for a six- or 12-month policy up front and set it to automatically renew. Also, your insurance company can’t raise your rates during that time.
Don’t change too often. Some insurance companies charge their customers a fee if they change companies every year. Every two to three years is a good time to compare rates to make sure you’re getting the best deal.
If you just got a ticket, don’t switch. If your risks have recently gone up, like if you got a ticket, your credit score went down a lot, or you now have a longer commute through a bad neighborhood, your current insurance company won’t raise your rates until your policy is up for renewal. If you switch companies now, you can expect to pay more because there is more risk involved.
Check with your provider to see if you are missing out on any discounts. Most car insurance companies will give their policyholders a discount on their premiums if they meet certain requirements. Keep in mind that each insurer has different rules about how much you can save and how you can qualify.
Some discounts on cars are:
Bundling a safe car with a good student and a safe driver with telematics
And that’s only the start. Find out how much you can save if you want to keep more of your hard-earned money where it belongs – in your pocket.