Why Is Car Insurance So Expensive?

Fran
Lucy Lazarony
October 7, 2020

The auto insurance coverage required by your state impacts the cost of your auto insurance as does the additional coverage that you choose to keep so that you and your family will be safe should an accident happen. And there are additional factors that may raise car insurance rates.

For example, if you have a poor driving record, you will pay more for your auto insurance than someone with a clean driving record. And even men in general pay more for car insurance than women because they make more accident claims than women. All these things impact the car insurance rates that you pay. Let’s take a closer look at what makes car insurance so expensive.

How Does Car Insurance Work?

Car insurance is regulated at the state level and that is why choosing car insurance begins with the minimum insurance requirements in your state. Lenders also have a say in your insurance when you are financing a vehicle. And then it is up to you to choose the coverage amounts for your family. Once you know the insurance coverages that you want you can let your insurance agent know. And you can set up a payment plan for paying your car insurance.

Insurance Coverage Required by Your State

Most states require liability coverage for the drivers in their states. If you ever cause a car crash, liability insurance pays for other people’s injuries and property damage up to your liability limit. So this is important coverage to have, important enough to be mandated by state law.

Uninsured and underinsured motorist coverages are required in some states as well. Uninsured motorist coverage helps pay for damages caused by a driver who doesn’t have insurance. Underinsured motorist coverage protects you in the event of an accident where the other party is at fault and doesn’t carry enough insurance.

And finally there is Personal Injury Protection (PIP), also known as no-fault insurance. If you happen to get in an accident, PIP will reimburse you for any hospital and medical expenses and lost wages from inability to work. PIP pays these expenses regardless of who is responsible for the accident. If your state requires PIP, you will be paying for this important coverage with your car insurance.

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Insurance Coverage Required by Your Lender

If you have a loan on your vehicle, your lender may require you to carry collision coverage and comprehensive coverage. Collision insurance is coverage that helps to repair or replace your car if it’s damaged in an accident with another vehicle or object such as a tree or a fence. Comprehensive insurance covers events that aren’t covered by collision insurance. These events include fire, theft, vandalism and damages from weather such as a tornado, a hurricane, a windstorm and a hailstorm. You’ll need to pay for these insurance coverages for the length of the loan. Once the loan is complete, you get to decide if you want to continue the coverages.

Insurance Coverage to Keep Assets Safe

You’ve met your state’s requirement for insurance by paying the state minimum liability coverages and other required insurance coverages. But the state liability minimums are very low and won’t begin to pay for damages if you should be in a serious accident. Because of this, you may need to pay for accident charges out of your own pocket. To avoid this scenario, experts suggest raising the liability limits on your insurance. The Insurance Information Institute recommends $100,000 bodily injury liability per person, $300,000 bodily injury liability per accident and $100,000 property damage liability per accident.

Factors That Increase the Cost of Insurance

If you are single, male, if you rent your home or if you live in a neighborhood with high crime, you will pay more on your car insurance. Your age can be a factor as well. Drivers under the age 25 or older than 65 have more serious accidents and pay more for car insurance.

If you are a heavy commuter and drive a lot of miles you’ll pay more on your car insurance than someone who drives much less frequently.

If you don’t maintain continuous coverage of your car insurance you’ll pay higher insurance rates when you do sign back up for coverage.

In most states, having a poor credit score can cause your auto insurance rates to go up. So improving your credit score is one way to bring down the cost of your auto insurance.

Ways to Lower Your Car Insurance Premium

Here are some ways to bring down the cost of auto insurance.

Bundle Your Policy. Bundle that auto insurance policy with another insurance policy such as a homeowners insurance policy and save money.

Insure Two Cars. Insure more than one car with the same insurance company and save money with a multi-car discount.

Pay Once or Twice a Year. Rather than paying monthly auto insurance bills, pay the entire annual amount or six-months amount. Your premium is lower when you pay just once or twice a year.

Check for Discounts. Students, veterans and good drivers all may be eligible for discounts. So reach out to your car insurance company if you qualify.

Maintain a Squeaky Clean Driving Record. Drivers with excellent records pay less for car insurance than drivers with speeding tickets, at-fault accidents and DUIs. So follow the rules of the road and save money on your car insurance.

Improve Your Credit Score. As mentioned earlier, in most states a good credit score will lead to a low rate on car insurance. So build up that credit score. Pay bills as agreed, get current on all past-due accounts, pay down debt. All these things will help to improve your credit score and help you land a lower car insurance rate.

Compare Car Insurance Rates. Some insurers are more lenient than others if you don’t have a great credit score or if you have a riskier driving record. All you have to do to get free quotes is enter your zip code below.

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