Why Is My Car Insurance So Expensive?

If your car insurance is too expensive, a number of common factors may be to blame. Your age, driving record, credit history, coverage options, what car you drive, and where you live are all common causes of exorbitant insurance rates. Anything that insurers can associate with a higher likelihood of being in an accident and filing a claim will result in higher car insurance premiums.

Factors that can make car insurance expensive

Insurance companies set rates for each driver based on the likelihood that the driver will file a claim and the cost of that claim. If your insurer believes you are likely to file a claim, your rates will rise. Many factors are considered by insurers when determining rates, but here are some of the most common reasons why some drivers pay so much for car insurance.

Your insurance company

Insurance rates vary dramatically between insurance companies, and if you buy a policy from an expensive insurer, you could be paying much more than you need to.

The top ten insurers nationwide charge an average of $438 for six months of basic coverage for a good driver. That same driver, however, could pay as little as $309 from State Farm or as much as $625 from Allstate. Switching from Allstate to State Farm would reduce that driver's insurance premium by 51%.

The only way to ensure you're paying the lowest possible price is to shop around and get quotes from multiple insurance companies.

Your age (and your gender)

Younger drivers pay much more for car insurance than older drivers, with young drivers paying 4.5 times more than adult drivers in their mid-30s. The primary reason for these high rates is that young drivers are statistically more likely to be involved in car accidents, which result in expensive claims for insurers.

Young men are especially prone to overpaying for car insurance. A 20-year-old man pays approximately 16% more than a 20-year-old woman. As drivers get older, the disparity narrows, and older women pay slightly more than men of the same age — albeit only by a few dollars per month.

How to save: Sharing a policy with an older family member is one of the best ways for younger drivers to lower their premiums. This can save you up to 58% on your overall insurance bill. Younger drivers may also be eligible for good student discounts or take additional training courses to reduce rates even further.

Where you live

Car insurance prices vary greatly across the United States. Residents of Michigan, the most expensive state for car insurance, can expect to pay six times more for coverage than residents of Maine. Minimum coverage amounts, the number of uninsured drivers, and even how well-maintained the roads are all factors that influence insurance rates in a state.

Insurance costs can vary within a state or even within a city. If you live in an area with a high rate of car theft or narrow roads that cause many accidents, you may have to pay more than you would elsewhere. In San Francisco, for example, the price difference between the cheapest and most expensive ZIP codes for car insurance is $618 per year.

How to Save: We don't recommend moving to a new neighborhood, city, or state just to save money on car insurance. However, if you're already planning to relocate, it may be worthwhile to obtain a few sample insurance quotes to understand how rates will differ in your new location.

Your car insurance coverage options

The more car insurance you purchase, the higher your premiums will be. Annual premiums for a full coverage policy, which includes comprehensive and collision insurance, are 170% higher than for a liability-only policy. Comprehensive and collision insurance pay for the cost of repairing or replacing your vehicle, less your deductible — the amount you must pay out of pocket before your coverage kicks in.

Policies with high liability limits, as well as comprehensive and collision coverage with low deductibles, are especially costly. When compared to the cost of a liability-only policy, this policy costs $1,053 more per year.

How to save money: You have complete control over your policy's coverage, so you can easily reduce your limits — as long as you're above the legal limit and meet any requirements imposed by your lender. However, if you are involved in an accident, you will be liable for any claim that exceeds your insurance limits.

Your driving record

Drivers with recent accidents or traffic violations on their records typically pay significantly higher car insurance rates than clean-record drivers. Adult drivers who have recently been involved in a collision pay 42% more for auto insurance than those who have had no accidents or violations. This disparity in rates is due to the fact that these drivers are statistically more likely to be involved in a future accident.

Those who have been convicted of a serious traffic violation, such as DUI, may face higher auto insurance rates because they must obtain SR-22 insurance. This is a type of insurance policy for high-risk drivers, who must have their insurer file an SR-22 form on their behalf, attesting that they have the required minimum car insurance coverages.

How to Save: In some states, taking a defensive driving course can help you reduce the impact of a ticket on your record. Regrettably, the only way to lower your rates after a crash is to wait.

Your car

When determining rates, insurers consider the type of vehicle you own. Some vehicles are more likely than others to keep you safe in a collision, resulting in lower rates. Meanwhile, a fast or powerful car may encourage aggressive or reckless driving, leading to increased rates.

Larger, safer vehicles, such as minivans and small SUVs, typically have the lowest insurance rates, whereas smaller vehicles have surprisingly high rates. This could be because smaller vehicles sustain more damage in a collision.

Cars with the following characteristics are more expensive to insure:

• Newer
• Faster/more powerful
• More expensive
• Smaller

How to save: If you have a car with particularly high insurance rates, such as a luxury vehicle, a convertible, or a muscle car like a Ford Mustang, switching vehicles may result in significant savings on your insurance bill.

Your credit score

Car insurance companies may take your credit score into account when determining your premiums, and drivers with poor credit or no credit history are frequently charged more for insurance. Drivers with poor credit pay more for car insurance for the same reason that other rating factors do: They are statistically more likely than those with good credit to file a claim on their insurance.

Several states, including California, Hawaii, and Massachusetts, have prohibited the use of credit scores in calculating auto insurance rates. If you live in one of these states, your credit score will have no effect on your rates.

How to save money: It's possible that incorrect or false entries on your credit reports are dragging down your credit score, so check your credit reports on a regular basis to ensure they're accurate. The most important thing, however, is to pay your credit card and other bills on time. More information on improving your credit score can be found here.

More ways to save on insurance

If your car insurance is too expensive, there are several steps you can take to reduce your premium. The most important thing you can do is compare insurance quotes from various companies: Just because one company charges exorbitant prices does not mean you won't be able to find a better deal elsewhere.

Adult drivers can drastically reduce their high car insurance rates by comparing quotes and taking advantage of discounts. Furthermore, young drivers can save money by being added to their parents' policy rather than getting their own.

Compare quotes from multiple companies

The insurer you choose has a significant impact on how much you pay for car insurance. For identical coverage, the insurer with the highest rates can be up to 81% more expensive than the insurer with the lowest rates. Because of this disparity, we recommend comparing quotes from multiple companies to find the best car insurance rates.

Look for discounts

Most car insurance companies offer policyholders a discount on their car insurance premiums if they meet certain criteria. Keep in mind that the amount you can save and how you qualify will differ depending on the insurer.

Common car insurance discounts

Make your insurance right for you

Even after receiving discounts and shopping around for the best rates, you can reduce your monthly cost even further:

• Pay in one lump sum. Paying for a six-month or 12-month policy in advance and setting it to auto-renew can result in a discount. It also prevents your insurance company from raising your rates during that time.
• Avoid changing companies too frequently. Customers who switch insurance companies every year may face penalties from some companies. It's a good idea to compare rates every two to three years to ensure you're getting the best deal.
• Keep an eye out for price reductions. If you've been with the same company for a long time, you may no longer be getting the best deal, which is known as price optimization or the loyalty penalty. To attract new customers, car insurers can offer lower rates. Shop around for quotes every few years, or ask your insurer if any new customer discounts are available to keep you from switching.
• If you just got a ticket, don't switch companies. If your risks have recently increased, such as a traffic ticket, a significant drop in your credit score, or a longer commute through a bad neighborhood, your current insurance company will not raise your rates until your next policy renewal. Expect to pay higher rates if you switch companies now to account for the increased risk.