If you own a car you know …
Insurance is one of the major costs of owning a vehicle.
So, how much does car insurance cost, and how do insurance companies decide that?
On average, Americans last year paid $1,426 for a full-coverage policy, according to thezebra.com, about $119 per month. But those figures can be misleading.
The range actually ran from $865 a year in North Carolina to a “budget-busting” $2,610 in Michigan. Kansas at $1,427 is the state closest to the national average.
The averages also can be different depending on the source of your information, although the fundamentals don’t change.
“Insurance rates are influenced by a number of different factors,” said insure.com. “Everything from traffic, crime rates, state and local laws, the percentage of uninsured drivers, as well as the number of insurance companies competing in a market can all result in higher, or, if you’re lucky, lower premiums.”
Some factors – such as driving habits or the level of coverage you choose – can be easy to change. Others, like your driving history and where you live, not so much.
In fact, there are several major cost factors for auto insurance:
- Basic demographics (age, sex, marital status and location)
- The car you drive (compact, mid-size, performance)
- Your driving history (tickets, accidents)
- Your credit score (poor, fair, good, excellent)
- Your driving habits (how much you drive your car, where you drive, even where you park)
- The amount and type of coverage you choose
- Whether you shop around for coverage
Following are explanations based on The Simple Dollar and The Zebra websites:
Insurance companies have an enormous amount of data that tells them how each of these things makes you more or less of a risk for filing claims. For example, a younger – typically, age 25 or below – unmarried male will pay more than an older, married female. There’s not much you can do about this other than get older and married – and move somewhere like Maine or Virginia.
The vehicle you drive
The basic rule of thumb is … the faster the car can go, the bigger the risk of a crash and the more you’ll pay for the thrill of driving it. You probably won’t pay nearly as much driving a family car such as a sedan, minivan or SUV as someone who drives a pricey high-performance vehicle. You also may be able to save some money by purchasing a used car, which usually will be cheaper to insure than a new one, or by getting anti-theft devices and safety equipment installed on your vehicle.
That is, the more driving tickets and violations you have, the higher your insurance rates likely will be. There’s not much you can do about this right away, except, perhaps, install a tracking device that records data on driving habits or take a defensive driving course to demonstrate to auto insurance companies that you’ve turned over a new leaf.
Insurers cite data that shows the higher a driver’s credit score, the less likely he/she is to file a claim, and that a driver with a poor credit score is more likely to file a claim. If your credit is bruised, there’s no quick fix to this but working on improving your credit score could help.
Drive less, pay less by reducing mileage, using public transportation or carpooling, although that may be easier said than done in a lot of locations – like, say, Montana or Wyoming.
Amount and type of coverage
What is your maximum coverage and your deductible? Are you carrying personal injury protection (not required in all states) and comprehensive vehicle coverage? Whether you carry more or less insurance than required in your state, precisely how you answer these and other questions can make a big difference in how much you pay monthly for auto insurance.
Whatever your situation, said The Simple Dollar, “You should always look around to make sure you get the best deal, since each company places a slightly different emphasis on the factors above.”
Rest assured that knowing how insurance companies decide what it will cost to cover your car, you are in a better position to get the best possible deal on proper auto coverage.
And that it’s the smart financial choice.