Why Does Auto Insurance Cost So Much?

Fran
Lucy Lazarony
May 14, 2020

Have you paid your car insurance premium lately and wondered why your payment is just so high? Just how much your car insurance costs depends on a number of things.

There are many factors involved in determining a car insurance premium but you can be sure you will pay more for your car insurance if you're very young or your driving record is messy.

Having recent at-fault accident claims and driving violations, such as speeding tickets and DUIs, all have a major impact on your car insurance premium. So the messier your driving record the more you will pay in car insurance.

Your age, your gender, where you live, your credit score, your coverage choices and the type of car you drive are other factors that contribute to your auto insurance premium. Let’s take a closer look at each of these factors.

Age

Youth is not given a low rate on auto insurance. Drivers under the age of 25 pay more for their auto premiums. Why does car insurance cost so much for young drivers? Young drivers are more likely to be involved in accidents than drivers older than 25. Because of this higher accident rate, young drivers under the age of 25 pay more in auto premiums.

Gender

There is a gender divide when it comes to auto insurance premiums. Men are charged more than women on their auto insurance premiums. Why does car insurance cost so much for males? Male drivers in particular are more likely to make a claim on their car insurance. As a result, men get hit with paying higher premiums. Throw in some speeding tickets and a young male under the age of 25 driver can be paying quite a high price for auto insurance. What can a young male driver do, with two strikes against him? Having a perfect personal driving record, no speeding tickets, no at-fault accidents, nothing at all but a good clean record will help.

Where You Live

Car insurance is regulated at the state level so the state in which you live has an impact on the auto premium that you pay. Even more close to home, the neighborhood where you live affects your auto premium. If you live in a neighborhood with high accident claims, you’ll pay more for your car insurance premiums. If there is high auto theft or auto insurance fraud in your neighborhood you will pay more as well. Living in a quiet, ho-hum, accident-free, low-crime neighborhood will bring you a lower rate on your auto insurance premium.

Credit Score

Your credit score also has an impact on your auto insurance premium. Credit scores are numerical summaries of a person’s credit history. Credit scores are calculated using credit information such as past delinquencies and bankruptcies. Credit scores also look at payment history, debt ratios, the different types of credit in a consumer’s credit file and most recent credit accounts. Having on-time payment history is the best thing you can do for your credit score.

Insurance scores evolved from consumer credit scores, and insurance companies began using insurance scores in the mid-1990s. Today, all major auto insurance companies use credit-based insurance scores when pricing auto insurance policies, except for consumers in California, Hawaii and Massachusetts, where using credit histories to set insurance rates is banned. In all other states, insurance companies use these credit-based insurance scores to assign customers to risk pools and to determine the premium rate.

Coverage Choices

The insurance coverage options that you choose directly impact the price you will pay for auto insurance. If you opt for a full coverage policy, one with comprehensive and collision coverage, you pay more than a customer that opted for liability coverage only. Liability-only is the cheapest car insurance option you have, and unless you live in a no-fault state you will still meet state insurance standards with base coverage.

The deductible you choose has an impact on the price of the car premium that you pay.

A deductible is the amount you need to pay before your auto insurance company begins to pay for damages to your car or losses. When choosing a deductible amount, consider whether you can pay the deductible amount if there is an accident or loss.

A higher deductible on a new, more expensive car can result in great savings on your car premium. Just make sure you have an emergency fund that will cover that high deductible should something happen with your car.

On the flip side, choosing a low deductible will raise your auto premium so choose your options wisely.

Type of Car

You may not have been thinking about insurance when you picked your car but your car’s make and model, trim and body style and your car’s value all go a long way in determining your car’s insurance premium.

So consider how much a flashy in-demand car will cost you in extra insurance before you buy.

A flashy sports car is going to cost a lot more than a standard family sedan or an economy car to insure. The car that is cheapest to insure may not be the car you had in mind when you started your car search but it will be cheapest when it comes to calculating your premium.

If it seems like your car insurance premium keeps going up, you’re not imagining it. Cars, overall, are getting more expensive to insure due to new safety features and other technological changes.

Start Saving Money

But there are things you can do to lower your car premium. Here are just a few.

Improve your credit score. That all-important credit score is used for so many things, not the least is an auto insurance premium. Paying your bills on-time every time will do wonders for your credit score. Payment history accounts for 35 percent of credit scores and this can’t be stressed enough. Lowering debt also will help your credit score in a big way since the amount of debt that you carry accounts for 30 percent of a credit score. In fact, paying down debt is the fastest way to give your credit score a boost. So double up on your miinimum card payments and get serious about paying down debt. You will save money on interest fees and it will help to boost your credit score and help to lower your insurance premium.

Get by with low mileage. Keeping miles low is one way to lower your car insurance premium. Drive less and your car insurance company will charge you less. It’s as simple as that. So let your car insurance company know if you are driving 5,000 miles a year or less for a huge price-break.

Get married. Crazy as it may seem your auto insurance rates will be lowered when you share in wedded bliss. There is a correlation between being married and exhibiting safe driving behavior. So here’s another plus to being married: lower auto insurance rates.

Buy a house. Statistics show that people who own homes drive more safely. So let your insurance company know that you own your own home and enjoy the savings on your auto insurance premium.

Be a smart and safe driver. Follow the speed limit, drive cautiously, avoid accidents. Avoid speeding tickets. Don’t drink and drive. Be safe on the road and have a flawless driving record to show for it. Speeding tickets, DUIs and at-fault accidents will raise auto insurance rates considerably. Being an accident-free and safe driver keeps your auto premium low.

Choose a high deductible. Opting for a high deductible is one way to lower your insurance premium. Just make sure you have enough cash set aside to pay the deductible if something should happen to your car. Your best bet is to build a small emergency fund. Three months of take-home pay is ideal but even a few hundred dollars is a good place to start.

Shopping around. Maybe the biggest way to save money on auto insurance is to shop around. SmartFinancial makes it easy to compare free car insurance quotes instantly. Just input your zip code and you’re ready to go. Next, answer a brief questionnaire letting SmartFinancial know the kind of auto insurance coverage that you want. Do you want cheap car insurance or are you looking for more comprehensive coverage?

SmartFinancial will do a comparison of more than 200 car insurance companies.

Review the offers and choose the best car insurance for you. It is that simple.

Here’s a tip. Don’t settle for the first quote that you get. It is always best to compare several offers. So don’t rush and really review all the offers you have in front of you.

With SmartFinancial, you’ll get the cheapest car insurance quotes available. It is an easy way to compare car insurance and find the affordable insurance you are looking for

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Online Car Shopping

If you’ve found your auto insurance online, why not your next car? If you dread shopping in person, online car shopping may be the way to go. Like all online shopping, online car shopping is fast and convenient. And there may be fixed discounts available so be sure to check. With online car shopping, there’s no wrangling with an in-person salesperson over price so it is bound to be a less stressful experience. But you’ll be wise to do plenty of research. Catching up on pricing, car options and resale value by researching online is a smart move. You still want to get a great deal even if you never set foot in a car dealership.

Although visiting a dealership briefly is a good idea if only for a test drive. You want to make sure the car you want drives the way you like it and you don’t have to argue with anyone about price to do that.

Don’t forget to get pre-approved for an auto loan. It is always a good idea to have auto financing in hand ahead of time. That way a dealer will have to beat the best offer you found on your own to get your loan business. Your local bank or credit union is a good place to start. They already know you and they would want to expand their business with you.

It is also a good idea to have your car insurance lined up before you shop for a car online.

As mentioned above, SmartFinancial makes it easy to find the best offers for your auto insurance needs. So you’ll know what insurance information to pass on to the dealer when you shop for your car online. So choose an auto insurance company before you start shopping for a car online. You want your auto financing and auto insurance all pre-approved when it is time to go shopping for a car. It makes the shopping experience cleaner and easier when those pieces are already taken care of.

So shop smart for auto insurance, shop smart for cars and get the best deals you can find online with just a little bit of savvy research.

Get a Free Auto Insurance Quote Online Now.

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