The Average Driver

Why is car insurance so expensive? (2022)

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On average, Americans pay $1630 per year on car insurance, or $135 dollars per month. When a person purchases a new vehicle, car insurance is a thing that every driver must have. With that, there are plenty of auto insurance companies out there providing this service, with many different insurance rates and types. However, the question always comes up: Why is car insurance so expensive?

There are several factors that play into insurance cost, with the major ones being your driving record/age, the type of insurance policy, and the type of car you have.

Why does a driving record and age matter?

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A driving record can have several implications on an insurance rate. For example, if a driver has a driving history of tickets and/or at-fault accidents, then they are considered a high risk driver and will see higher car insurance rates. A way to erase some of the cost from traffic violations is to take a defensive driving course to show that you are a changed driver.

On the flip side, if you are a safe driver with a clean driving record, then you might see lower rates.

Age also impacts car insurance rates. Young drivers are considered to be inexperienced, “higher risk” drivers. This can lead to higher rates and car insurance premiums. Something that helps combat those high rates (to some degree) and save some money is a student/senior citizen discount–if you are a good student with solid grades. They will need proof in the form of a transcript.

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As time passes and the driver gets older, car insurance rates will start to go down. 25 is considered “mature” in the eyes of insurance companies, making that the last major price drop to escape higher premiums and insurance costs.

One last part related to this that is a determiner of auto insurance premiums is the drivers credit score and credit history. A lower credit score can lead to higher rates for the driver.

Along with this, a poor credit score indicates a higher probability that the driver could file a claim (or claims) with the insurer.

Why does the type of insurance policy matter?

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Car insurance comes in many shapes and sizes, with varying deductibles and coverage types, however there are 6 major tenets that determine the cost of car insurance. They are as follows:

Bodily injury liability coverage

This is pretty simple: This is meant to protect you in the event that you hit or injure someone with your car.

Personal injury protection coverage

This is meant to help cover the cost of any injuries that you take on from an accident.

Property damage liability coverage

This is meant to cover damage done to another persons property. This is very broad and can apply to a lot of objects, aside from a car (fence, post, mailbox, etc.).

Collision coverage

This is meant to cover damage taken on by your car in most circumstances, aside from hitting a deer. That is covered with comprehensive.

Uninsured motorist coverage

This is meant to protect you in the event that you get hit by uninsured drivers.

Comprehensive coverage

This is meant to cover the cost of replacing your car in the event of a total loss from something non-collision related. This includes natural disasters/weather and even vehicle theft.

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One of the most common insurance types that drivers pay for is PL/PD (personal liability/property damage). This is considered a very bare bones insurance policy. The upside to this is the lower auto insurance rates tied to it.

The other common insurance type is people opting for full coverage. This includes every policy listed above, protecting the policyholder from most situations they can find themselves in. Full coverage is typically the most expensive car insurance rate because of the vastness it covers. However, it also gives the most peace of mind for drivers.

One way to potentially decrease a drivers premium is to raise the deductible. By doing this, the driver is saying that they will pay more out of pocket for damages.

In the event an accident occurs and the driver is at fault, the at-fault policyholder could see rate increases.

Why does the type of car matter?

While this is a smaller part of the equation, it is still an important one. Insurance providers will look at the year, make, and model of your vehicle. If a car is newer, it will be more expensive to insure.

If the car has anti theft features, then the cost of car insurance might be lower because it is deemed “safer” by a car insurance company.

Insurance companies and auto insurance

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Another factor to consider is whether or not to pay per year, biannually, or monthly. This is ultimately down to the policyholder.

There is a wide berth of insurance companies out there, with major ones being State Farm, Farmers Insurance, Progressive and Allstate to just name a few. Each provider might be offering different deals and discounts on coverage, especially if a driver is bundling home and auto insurance.

It is important to shop around with the different providers and compare quotes to see the best rates. Insurance coverage is a crucial part of owning a vehicle. It’s best to research different car insurance companies and choose what’s best for you and your budget.

One of the best automotive insurers out there is State Farm because they offer highly competitive rates. Student drivers can take advantage of their Drive Safe and Save discount, which discounts auto insurance rates by 25%.

Parting thoughts

Maybe we are looking at the question “why is car insurance so expensive?” incorrectly. We should be looking at it as “what can we do to reduce car insurance?”

To sum it up, having a clean driving record, a strong credit score, a decent car, and making sure you are only paying for what you need policy-wise are easy ways to reduce the cost of car insurance premiums. It’s important to not make a cars insurance more expensive than it needs to be.

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