The Cost of Car Insurance
As much as I’d love to be able to tell you a number right off the bat, unfortunately, it’s not that simple. Car insurance is a complex insurance product, and like any insurance product, auto insurance costs depend on several key factors. Here, I'll discuss those factors that play on your car insurance and what you may be able to do to keep them down.
- The bottom line
Understanding insurance terms
Before diving into the factors that will determine the cost of your car insurance, there’s something you need to know: When you start comparing car insurance policies, you’ll notice quite a few terms thrown in there. All of these terms make up some aspects of the total cost of your auto insurance policy. Understanding these key terms will make it much easier to make a fully-informed decision about your car insurance policy.
Your annual premium is the “cost” of your policy. You will pay this amount to your insurance company to keep your policy active. Depending on the policy and payment plan you choose, you may pay your auto insurance premiums once every month, once every 6 months, or even once per year.
If you forget to pay your premium, your car insurance policy may be canceled. Fortunately, most auto insurance companies offer automatic payment programs that you can enroll in. If you do enroll in this program, you should still check to make sure that your payments successfully go through.
Here’s the thing: Even though you pay a premium for your car insurance, you’re still probably going to have some out-of-pocket costs. That’s why you want to keep an eye out for the deductible(s) on your car insurance policy.
If you get into an accident or run into another situation in which you may need to use your car insurance coverage, you’ll file a claim with your insurance company. If the reason for your claim is covered by your car insurance policy, it is considered a covered claim.
The deductible is the amount of money that you’ll have to pay out-of-pocket for your covered claims before your insurance company will reimburse you for them.
For example, let’s say you submit a claim to your insurance company for $700 worth of damage. The claim is considered a covered claim. If your insurance policy has a deductible of $500 for this type of coverage, your insurance company will reimburse you $200 for the covered claim.
After this, your insurance policy will reflect that you’ve “met your deductible.” It’s also important to keep in mind that since there are different types of car insurance coverage, each type of coverage may come with its own deductible.
Unfortunately, your car insurance policy most likely won’t come with unlimited benefits. Your policy will likely include insurance limits, which is the maximum amount of monetary damages that are covered by your policy. In most cases, car insurance policies have separate limits for each type of coverage.
Your state’s car insurance requirements will also play a part in your insurance limits, for example, requirements will be different in Hawaii than in Illinois. These requirements include the types of coverage that you must have and the minimum coverage amounts of insurance limits that each coverage should have. Your insurance agent and/or insurance company should be familiar with your state’s requirements and can help you make sure that your policy meets them.
Factors that affect your premium
It’s nearly impossible to estimate how much your car insurance will cost simply because there are so many factors that go into determining your premium.
Where you live
Your location affects your premium in a couple of different ways. First, the state that you live in will determine the minimum car insurance requirements that you’ll have to meet, again what is offered in Colorado may not be available in Pennsylvania.
Insurance companies will also take a look at things that are specific to the area where you live, be it in Florida, California, Michigan, or Hawaii. They may take into consideration the average cost of medical care and car repairs in your area, the types of weather you experience, and more.
You may also find that your premium is higher if you live in an urban area such as New York. Insurance companies typically take into consideration the higher rates of accidents, thefts, and vandalism in urban areas in comparison to rural areas. The car insurance rate may also fluctuate depending on whether you park your car on the street or in a secure covered space such as a garage.
Since an insurance company wants to ensure that it won’t lose money by insuring your vehicle, they’re going to make sure your premium is high enough to cover the risks that you face.
Your driving record
Speaking of risk, you should be aware that insurance companies will probably take a look at your driving history before giving you an auto insurance quote. If you have a clean driving record, this shows the insurance company that you won’t pose a high amount of risk if they sell you an insurance policy. This doesn’t mean that you can’t get car insurance if you have accidents or traffic violations on your record, but you can expect your premium to be higher.
The exception to this is if you’re a new driver and/or a young driver. Even if you have a clean driving record, the fact that you’re still new to the road can pose a higher amount of risk for the insurance company. You can also expect to receive a higher rate if you fall under this category.
Believe it or not, the vehicle that you drive can also affect the cost of your insurance. Your insurance company will take the safety of your vehicle into consideration, including the types of safety equipment that your car has. This can include anti-theft features as well as some of the newer safety features such as rearview cameras and forward-collision warning.
Insurance companies will also consider the safety record of your car’s make and model, as well as its likelihood of theft. If the type of vehicle you drive has a higher chance of inflicting a significant amount of damage in a collision, you may be charged more for your vehicle’s liability insurance.
Your age and gender
It might seem a little bit weird for an insurance company to take these factors into consideration, but statistically speaking, it makes sense for them to do so when calculating the risk of insuring you.
The Insurance Information Institute reports that “In general, mature drivers have fewer accidents than less experienced drivers, particularly teenagers. Insurers generally charge more if teenagers or young people below age 25 drive your car.”
As far as gender goes, the Insurance Information Institute says that “Statistically, women tend to get into fewer accidents, have fewer driver-under-the-influence accidents (DUIs) and — most importantly — have less serious accidents than men. So all other things being equal, women often pay less for auto insurance than their male counterparts.”
Another way that insurance companies calculate their risk is by considering your credit score. Using information from your credit report, an insurance company can predict the likelihood of you paying your car insurance premiums and know if you are high-risk. Insurance companies can also use a statistical tool to predict the likelihood of you filing an insurance claim. This is why they offer better rates to those with good credit.
The insurance policy
There are several parts of your policy itself that can help determine your insurance premium. Each type of coverage that you include in your insurance policy will raise the cost of the policy. The same is true for the insurance limits for each type of coverage. The higher your limits are, the more you’ll need to pay for the policy.
The amount of your deductible can also raise or lower your insurance premium. Generally speaking, the higher your deductible is, the lower your premium could be.
Types of car insurance coverage
Your car insurance policy will probably be made up of a few different types of coverage. Each type of coverage provides a specific set of benefits. When you combine the coverages together, it can provide protection for yourself, your vehicle, your passengers, other people, and other people’s property.
Bodily injury liability
When you take out an insurance policy for yourself on your own vehicle, you become the policyholder of the insurance policy. Bodily injury liability insurance is meant to protect people other than the policyholder.
You’ll be able to use this coverage if you get into a car accident that is found to have been caused as a result of your actions, as long as the accident is covered by your insurance policy. If the car accident causes bodily injury to someone else outside of your vehicle, it can cover their medical expenses.
Most states, like North Carolina and New Jersey, have a minimum requirement for bodily injury liability insurance. Your insurance company or insurance agent can help you make sure that your policy meets that requirement. You may also elect to purchase a higher amount of coverage if you’d like to.
Property damage liability
Similarly to bodily injury liability coverage, property damage liability coverage is meant to protect other people’s property. If you as the policyholder caused damage to someone else’s property, you’ll be able to use this coverage as long as the incident is covered by your insurance policy.
Typically, this coverage is used when you damage someone else’s car in a car accident. However, it can also cover damages to other types of property, such as fences, lamp posts, buildings, or other structures.
Your state most likely also has a minimum requirement for the amount of property damage liability coverage you must have in your insurance policy.
If you’re looking for coverage for damages to your car, collision insurance is what you want. This type of coverage usually covers situations like damage to your car from a car accident either with another car or an object. It may also cover damages caused by your vehicle flipping over or from potholes.
Collision coverage can reimburse you for the cost of repairs to your vehicle, even if the accident that caused the damage was your fault. You’ll be reimbursed for the cost of your repairs, minus your collision coverage’s deductible. So if your deductible was $300 and your repairs cost $1,000, your insurance company would reimburse you for $700.
If you get into an accident and the other driver is at fault, your insurance company may try to get back the money they reimbursed you from the other driver’s insurance company. If they are able to recover this money, you may also be reimbursed for your collision coverage’s deductible.
Collision coverage is not required by the state, but if you took out an auto loan on your car, your auto loan lender may require that you have it until the loan is paid off.
Sometimes your car might get damaged by something that is completely out of your control. These situations can include fire, falling objects, earthquakes, windstorms, flooding, hail, vandalism, riots, or theft. If you live in a more rural area, you’ll be happy to know it can also cover damages from animals such as birds and deer.
In some cases, your comprehensive coverage may also reimburse you if your windshield is cracked or shattered. Some insurance companies offer separate glass coverage, so you should check to see how your insurance company handles windshield damage.
You are not required by your state to have comprehensive insurance. However, if you are currently paying off your vehicle with an auto loan, your auto loan lender may require you to have it.
Medical payments or personal injury protection (PIP)
This coverage can help pay for your injuries and the injuries of your passengers if you get into an accident. It can cover your and your passenger’s medical bills, as well as lost wages if you’re unable to return to work due to injuries sustained in the accident. It may also cover funeral costs for yourself or your passengers.
Uninsured and underinsured motorist coverage
Even though states Connecticut and Maryland may require bodily injury and property damage liability insurance, it’s always possible that you could get into an accident with someone who does not have any or enough car insurance. If this happened, your uninsured and underinsured motorist coverage could reimburse you for a few reasons:
- If you get into an accident with an uninsured driver.
- If you’re involved in an accident with a hit-and-run driver.
- If you get into an accident in which the other driver was at fault and the driver doesn’t have enough insurance to pay for your damages.
- If you’re struck by a vehicle while you’re walking.
Where to get car insurance
There are several car insurance companies that sell car insurance. Most companies will let you get an auto insurance rates on their website so you can compare each company based on the coverage they offer and the premium they offer you. Here are just a few popular insurance companies that offer car insurance in the United States.
State Farm is available in most of the United States and has over 100 years of experience offering insurance — although it is not available in Massachusetts or Rhode Island. This company offers several coverage options that can be tailored to your needs, including insurance for rental cars. If you drive for a ridesharing company such as Uber or Lyft, you can also purchase your rideshare insurance from State Farm.
Progressive offers unique programs and tools that can help you find coverage options that best fit within your budget. You may be able to opt into the Snapshot program, which uses a device or an app on your phone to monitor your actual driving. Progressive uses this information to set a premium that reflects how much you actually drive and how safely you drive. You may also be able to use Progressive’s Name Your Price Tool to have Progressive show you coverage options that fit within the prices that you’re willing to pay for your insurance.
GEICO is another option for affordable car insurance. It offers several insurance discounts, including discounts for student drivers, federal employees, military members, and senior drivers. GEICO also offers a claims and repair program that will help you locate a repair shop with a representative that can facilitate your repair process and keep you informed every step of the way.
As one of the more expensive insurance providers, Nationwide auto insurance may not be for everyone. However, the Ohio-headquartered insurer does offer great savings benefits, including long-term savings, accident forgiveness, and an annual assessment to make sure you're receiving the discounts you could be eligible to receive. Although Nationwide's average rates may be higher, they do provide the full coverage you may need.
How to save on car insurance
Fortunately, there are plenty of ways you can save money on your car insurance premium.
Compare before you buy
Don’t feel like you need to purchase the first car insurance policy that you find. Taking the time to research your options can help you find the policy that best fits your budget. Some insurance companies may offer programs that can save you money, and there are several discounts that you may be eligible for. If you’re in the market for a new vehicle, you can also look up the insurance costs for the cars that you’re considering before making your purchasing decision.
There are companies that make it easy to compare quotes. Gabi, for example, is a free tool to generate car insurance quote comparisons to help you find the best price.
Bundle your insurance policies
If you already have another type of insurance — such as homeowner’s or renter’s insurance — you can start by reaching out to your insurance company. Most insurance companies offer “bundling discounts” if you purchase your car insurance from the same company that you already have an insurance policy with.
Change your deductible
You can usually lower your premium by raising your deductible. Doing this can help you save on the month-to-month costs of your car insurance. However, you should keep in mind that if you do need to file an insurance claim, you will be responsible for meeting your deductible before your insurance company will reimburse you for a covered claim.
Look into other discounts
Don’t be shy — ask insurance companies if you qualify for any discounts! Most insurance companies offer discounts for things like taking a defensive drivers course and having a positive driver record. You may also be able to find discounts for being a good student, being a military member, and enrolling in certain programs offered by the insurance company.
The benefits of car insurance
Do you need car insurance? If you drive, then the short answer is yes, you probably do. It’s just another thing to add to your plate and your budget, I know, but it’s also important for many reasons.
Complying with state guidelines
If you’re driving a car, you must be able to prove that you would be able to pay for the damages if you cause an accident. The best way to do this is to have an active car insurance policy. If you do not have sufficient insurance, you run the risk of facing legal penalties such as having your driver’s license and/or car registration suspended.
Even if you don’t face legal penalties, getting into an accident without insurance can be financially devastating. The price of your insurance premium is completely worth saving on costly repair shop charges and medical bills if you ever do need to file an insurance claim.
The only con is the cost
Paying for car insurance is just one more thing to worry about. But by doing your research to find the right policy and company for your needs, the pros of having insurance can easily weigh out this one con.
The bottom line
Think of your car insurance premium as a necessary cost for being a driver (and let’s face it, an adult in general). You can work with an insurance agent to figure out what coverage you need to meet your state’s requirements. Then, consider the coverages you want to have and how to fit it into your budget. After you’ve purchased your car insurance, be sure to check back before you renew for additional discounts. You can also switch insurance companies if you find a better deal later on when it’s time to renew your policy.