Why is Car Insurance So Expensive?

Let's look at some of the reasons your car insurance might be more expensive than average.

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What makes auto insurance expensive?

Many factors — both related to driving and otherwise — lead to expensive auto insurance premiums. Age, driving record, credit score, and insurance history each play into car insurance rates. We outline below reasons auto insurance could be expensive, along with some ways to save.

  1. Your credit history
  2. Your age
  3. Your driving record
  4. Your location
  5. Your company

 

1. Credit history

Credit score is a primary contributor to car insurance rates. Federal Trade Commission (FTC) studies show drivers with poor credit file more claims than drivers with high credit scores and file more costly claims. These drivers pose considerable risk to car insurance companies. On average, drivers with credit ratings in the "Very Poor" tier (300-579) pay $910 more for a six-month policy than do drivers with credit scores in the "Exceptional" range (800-850).

credittier_avgpremiums.pngEach tier of credit score improvement comes with an average savings of 17% — or $193 per six-month term — on auto insurance premiums. If you have a clean driving record but think your rate is too high, check your credit score.

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2. Age

Car insurance companies typically conflate age and driving experience. Drivers younger than 25 often pay more for car insurance than do older drivers, due to a perceived lack of driving experience. Drivers between the ages of 16 and 24 pay 139% more than drivers between the ages of 25 and 75.

agegroups_averagepremiums.pngAs a driver grows older, their auto insurance premiums typically decrease. Drivers see big savings on their 19th, 20th, and 25th birthdays, specifically. Young drivers should be especially mindful of displaying good driving habits. A bad driving record coupled with an age of less than 25 will lead to high premiums.

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3. Driving record

A driver's auto insurance premium could be expensive because of recent claims or driving violations. Speeding tickets, at-fault accidents, and DUIs have major implications on insurance premiums. After any violation or claim, an insurer will upcharge a driver for three to five years. In California, drivers can be charged for up to 10 years after being convicted of DUI.

Below are some of the most expensive driving violations and their impact on rates. For example, a driver convicted of a hit-and-run should expect their premium to increase by an average of $606 per six-month period.

byviolation_avgpremiums.pngComprehensive claims, generally considered to occur outside of the control of the driver, increase premiums by lesser amounts. On average, a comprehensive claim raises rates by $36 every six months.

Not-at-fault accidents can also lead to elevated rates. Even when a driver was not at-fault in a collision, car insurance companies raise rates to cover the cost of the claims adjuster and overhead fees. Even without filing a claim, driving history could be a reason for expensive auto insurance rates.

Accident

6-Month Premium

None$774
Comprehensive claim$810
Not-at-fault accident$827

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4. Your location

Car insurance is regulated at the state level and priced at the ZIP code level. A driver could end up paying high car insurance rates because of claim frequency in their neighborhood or because of legislation in their state. Let's look at some of the most expensive states for car insurance.

 

Michigan

Michigan is a notoriously expensive state in which to insure a vehicle. Michigan residents pay 83% more than the national average for car insurance.

There are three primary factors contribute to Michigan's high auto insurance rates:

  1. Michigan requires no-fault insurance with unlimited Personal Injury Protection.
  2. The insurance coverage options offered in Michigan attract insurance fraud, litigation fees, and expensive healthcare bills.
  3. Insurance companies have to charge higher premiums in Michigan to earn a profit.

Michigan’s four closest neighbors enjoy comparatively affordable auto insurance rates:

Michigan and Neighboring States6-Month Premium
Ohio - 6th Cheapest State$523
Illinois - 13th Cheapest State$651
Wisconsin - 11th Cheapest State$590
Indiana - 10th Cheapest State$582
Michigan$1,548

 

Michigan's average premiums are 164% more expensive than Illinois, Wisconsin, Indiana, and Ohio. Even with a great credit score and no claims, living in Michigan can cost you.

Additional information

 

Florida

Florida is the third most expensive state in which to get car insurance. At $1,154 for a six-month premium, the Sunshine State's insurance costs are 49% higher than the rest of the US. The major reason for this is the insurance companies' loss-to-profit ratio in Florida. Hurricanes and flooding result in car insurance companies paying out heavy claim losses on a regular basis.

Another reason why Florida is more expensive than average is its no-fault insurance. Although it does not require as much coverage as Michigan’s no-fault coverage, the state requires drivers to carry Personal Injury Protection at a minimum of $10,000.

Florida's Neighboring States6-Month Premium
Alabama - 25th Cheapest State$725
Georgia - 35th Cheapest State$804
Florida$1,154

 

Additional information
 

California

California is the seventh most expensive state for car insurance, with an average six-month premium of $934 — 21% higher than the US average. Unlike Florida and Michigan, California is not a no-fault state and currently maintains very low liability coverage requirements. California is an expensive state for car insurance due to its population density and claim-to-profit ratio.

Cities with high population density — and thus more vehicles — are more likely to have more accidents and claims, which in turn impacts insurance premiums. Claim payouts via wildfires in California lower the profit-to-loss ratio for insurers. 

Additional information

 

5. Your car insurance company

You can't swap states simply because Texas has a higher cost of car insurance than Oklahoma. Nor can you improve your credit score overnight. The only instant action you can take to lower your premium is to switch car insurance companies, as one of the primary reasons you might be paying too much for car insurance is who you're insured with. Some companies are more expensive than others, no matter your driving profile.

Enter your ZIP code below to see car insurance quotes from major auto insurance companies.

 

Compare rates today!

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Ava Lynch LinkedIn

Based in Austin, TX, Ava has been in the insurance industry as a licensed agent for 4-plus years. Ava is currently one of The Zebra’s resident property insurance experts and has been featured in publications such as US News Report, GasBuddy, and Yahoo! Finance.