Whether you're investigating before buying a new car or you're looking into changing insurers, you'll find that estimating your car insurance rates becomes a complex process since insurers use so many factors to determine what you pay. Your annual premium can rise or fall depending on everything from driver profile and whether or not you have a clean driving record to the car itself and the coverage obtained. Thankfully, there are several strategies you can use to select affordable coverage and save through discounts and memberships with different organizations. Use this guide to learn all about what impacts the cost of car insurance and what you can do to get affordable coverage.
Exploring Key Auto Insurance Information
While car insurance will vary by the car insurance coverage level and cost, it all has the same function to financially protect drivers and is a legal requirement for motorists in most states. At one end of the spectrum, you'll find minimum coverage insurance that pays for damages to other vehicles and harm to the people inside but doesn't cover getting your car fixed in an at-fault situation. The most thorough coverage – called full coverage and consisting of liability, comprehensive and collision components – offers the most protection to pay for repairs to your vehicle as well as the other person's.
When you sign up for car insurance, you have to pay premiums that the insurance company charges, and usually you'll renew your coverage every six to 12 months depending on your location, insurer and preferences. When you need to make a claim, you'll often be liable for the deductible you've chosen for that type of coverage. For example, if your car gets damaged in a hailstorm and you've got full coverage, you might pay a $500 deductible before the insurer takes over for the rest of the repair cost.
Read More: Reasons Car Insurance Won't Cover an Accident
How Car Insurance Pricing Works
According to the Insurance Information Institute (III), the cost of car insurance will vary by individual. It's difficult to quote average car insurance rates since car insurance companies consider a large number of factors to determine the risk level a certain driver presents. For example, insurance companies will look at certain details about the vehicle, driver and the location where the vehicle stays parked. While drivers have some control over how some of these factors affect car insurance rates, other characteristics are beyond the driver's control. However, the good news is that shopping around for rates can help since costs also vary by insurance company.
While it's not possible to get the exact cost without requesting a quote and providing information about yourself and the car to the insurance company, you can look at some national statistics to get an idea of what people pay on average. For example, the National Association of Insurance Commissions (NAIC) has released a report that showed that the average cost of car insurance per year in the United States was $1,005 in 2017. The same data showed that Louisiana was the most expensive state with a yearly average premium of $1,444 compared to $763 for Vermont. In contrast, Progressive reported average six-month premiums ranging from $682 to $1,142 in 2020.
Getting a better understanding of why your car insurance might be low or high requires taking a look at the groups of different factors. This will also allow you to be strategic in finding insurance and keeping your premiums down, perhaps by bundling it with your homeowner insurance.
Coverage Levels Affecting Cost
Each of the types of coverage options you select will affect your car insurance rates, so choosing your coverage wisely can help lower your costs. The III explains that each coverage type will have a separate cost, and you can expect to pay the least if you opt for liability coverage and the most if you opt for full coverage. Further, your chosen deductible will also play a part in the calculation so that a lower deductible translates to higher premiums.
Liability coverage – usually the state minimum – has the lowest cost since the insurance company won't have to pay money to fix your car or pay your medical bills if you cause an accident. Instead, just the victim's property damage and medical expenses get covered. Full coverage costs the most since it adds in the collision and comprehensive coverage that will reimburse you for damage to your vehicle when you cause an accident or experience an incident like a fire, vehicle theft, bad storm or another event that harms your vehicle. You can also opt for add-ons like rental car reimbursement and roadside assistance that will further raise your car insurance rates.
Keep in mind that your insurance company will also have you set limits to these specific types of coverage. The higher the limits you choose, the more you can expect your insurance premiums to rise.
Driver Characteristics Affecting Cost
The type of driver you are will help insurers determine how risky you are and decide how much you pay for car insurance. The insurance company looks at your driving record to find out if you've had accidents – whether you're at fault or not – and if you've received tickets for offenses like driving recklessly. You can expect to especially pay higher rates or even face rejection from an insurance company if you've made several substantial claims in the past or if your driving violations are serious like a DUI. At the same time, new drivers face higher rates just for not having a driving history at all.
Other important characteristics that insurers consider include your age, address, gender and credit history. The III explains that drivers younger than 25 present a higher risk and pay higher premiums than older drivers, and male drivers also experience higher rates since they tend to have more accidents. The zip code where you live and park your car will either lower or raise your rates depending on how much crime occurs there, so a rural address usually leads to a lower price than a city address. A lack of credit history or a poor credit score can also raise your rates since insurers often link this financial status to a higher risk overall.
Read More: What Is Car Insurance for Teens?
Vehicle Characteristics Affecting Cost
Along with details about you, the auto insurance company will consider some qualities of the car you need to insure. This means they'll look at the make, year, model and any safety and security features in determining your premiums. For example, if you have an expensive car that would cost the insurer a lot to repair, then you can expect to see a rise in premiums versus a cheaper car with parts widely available. On the other hand, if you have a vehicle with technological features that can make it safer to drive or harder to steal, then you might see a small reduction in auto insurance rates for comprehensive and collision coverage.
The vehicle's purpose and expected use will also play a part in the calculation. If you expect to drive an unusually high number of miles for business, then you can expect higher car insurance rates than someone who rarely drives just for pleasure. If the car will be used for ridesharing work like Uber or Lyft, this can also raise your premiums due to the higher risk this usage presents.
Read More: Does Car Insurance Go Down Over Time?
Saving Through Car Insurance Discounts
When researching any of the major car insurance providers, you'll find they list at least a handful of discounts that can help coverage become more affordable. Here are some examples of these savings, along with some places you can find them:
- Student discounts: If you're a high school or college student or need to insure one, you can find savings through companies like Progressive that offer multiple student discounts. Along with the good student discount for full-time students with a "B" average, there's a distant student discount for students living away from home and keeping the vehicle at the parents' address. These discounts usually are only available up to age 24, and some insurers set a younger age limit.
- Vehicle safety discounts: Depending on your coverage type, you can save with common vehicle features such as daytime running lights, security systems, anti-lock brakes and airbags. GEICO offers these discounts along with a new vehicle discount that can help make premiums more affordable.
- Safe driver discounts: Car insurance providers like State Farm give a discount on premiums when you avoid at-fault accidents and don't commit serious traffic violations for a set period of time. More detailed discount programs – such as SmartRide from Nationwide – require tracking your daily trips with a gadget to see if you've gone over the speed limit or made hard stops and starts. This means your driving habits can cost more than just a speeding ticket.
- Driver education discounts: Some insurers offer savings to young drivers and senior citizens who take initial driver's education courses or complete defensive driving training programs.
- Affiliation discounts: If you're associated with the federal government, military or certain types of schools, businesses or associations, your affiliation could help you save on car insurance.
- Online policy administration discounts: Depending on the insurer, you can reduce your premiums by actions such as signing forms online, paying the premiums at once or using an automated deduction and renewing at least a few weeks before the policy expires.
- Customer loyalty discounts: Staying loyal by renewing your policy over several periods, combining policies or adding new vehicles to one policy can help you save over switching companies or taking out new policies.
Read More: What Are Car Insurance Discounts?
Saving Through Other Measures
Along with taking advantage of all discounts available, you can try some of these additional strategies to help control your car insurance premiums:
- Get added on to an existing policy: If you live with someone who already has insurance coverage, you might reduce costs if they agree to add you and your vehicle to their policy. This can especially help teen drivers and college students who already face very high rates, but you'll want to make sure the person adding you receives good rates already and has an insurer that offers a reasonable discount for added drivers.
- Choose a per-mile insurance arrangement: While the standard way of paying for car insurance can fit people who drive enough to make it worth the six- or 12-month premium cost, it disadvantages people who rarely drive. Newer insurance companies like Metromile have created an alternative where you pay a small set monthly rate and then just pay by the mile. After a certain number of miles in a day, the insurer might stop charging additional miles, so this can help avoid the risk if you do occasionally take long trips.
- Check for group insurance options: You could get a deal if you go with one of the insurance providers your workplace, college or other organization works with due to special group rates.
- Limit coverage for less valuable vehicles: While going with full coverage for a brand new car makes sense despite the higher cost, doing so can lead to wasted money when the vehicle has little value or is nearing replacement anyway. In that case, you could save money by getting a suitable amount of liability and medical payment coverage. You can check the Kelly Blue Book website to discover your used car's value.
- Keep insurance in mind when car shopping: While this doesn't offer instant savings, you can get lower rates in the future when you choose a car that's cheaper to insure. It's easy to miss insurance costs when you're comparing vehicles and arranging for financing, but getting quotes before the purchase can help.
Read More: More Than One Car on Car Insurance Policy
Getting Customized Car Insurance Quotes
To get an exact amount you might pay through a specific insurer, you can share some information online or over the phone with an agent. You'll provide car and driver information as well as answer questions that can help determine which discounts you get. You should also have decided the types of coverage and limits you want, and online quote tools will often allow you to adjust these items to see how they impact your rates.
Even if the first insurance company seems to offer a good deal, consider checking with a couple more before making your decision. You might find that the cheapest car insurance company has a lower cost due to poor customer service or a worse reputation than other options, so it's recommended to avoid going by the cost alone. You can ask some of your contacts about their insurance companies to get first-hand experiences that help you decide.
- Insurance Information Institute: What Determines the Price of an Auto Insurance Policy?
- National Association of Insurance Commissioners: NAIC Releases 2016/2017 Auto Insurance Report
- Progressive: How Much Does Car Insurance Cost by State?
- Insurance Information Institute: Facts + Statistics: Auto insurance
- Progressive: What Impacts Your Car Insurance Price
- Insurance Information Institute: Auto Insurance Basics—Understanding Your Coverage
- Insurance Information Institute: Do Auto Insurance Premiums Go up After a Claim?
- Insurance Information Insitute: Infographic: What Determines the Cost of My Auto Insurance?
- Insurance Information Institute: How To Save Money on Car Insurance
- Metromile: Save With Pay Per Mile Car Insurance
- State Farm: Take Control of Your Auto Insurance Discounts From State Farm®
- Nationwide: Auto Insurance Discounts
- GEICO: Car Insurance Discounts - Savings on Auto Insurance
- Insurance Information Institute: What Information Do I Need To Give To My Agent or Company?
- Allstate.com. "Multiple Policy Discounts." Accessed Feb. 27, 2020.
- Travelers.com. "Safe Driver Discounts." Accessed Feb. 27, 2020.
- GEICO.com. "Find Defensive Driving Discounts by State." Accessed Feb. 27, 2020.
- Insure.com. "Find ratings for top insurance companies." Accessed Feb. 27, 2020.
- Farmers.com. "Insurance Discounts FAQ." Accessed Feb. 27, 2020.
- GEICO.com. "Car Insurance Discount List." Accessed Feb. 27, 2020.
- Allstate.com. "Drivewise From Allstate." Accessed Feb. 27, 2020.
- Progressive.com. "BIG Discounts for Good Drivers." Accessed Feb. 27, 2020.
- StateFarm.com. "Drive Safe and Save Mobile for Your Smartphone." Accessed Feb. 27, 2020.
Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree, bookkeeping certification and experience running a small business and doing tax returns, she is knowledgeable about the tax issues individuals and businesses face. Other places featuring her business writing include Zacks, JobHero, LoveToKnow, Bizfluent, Chron and Study.com.