With the exception of New Hampshire and Virginia, like it or not, having car insurance is mandatory. What is not uniform, however, is the total cost of a policy, which is comprised of the premium and deductible.
While the national average hovers around $1,300 a year, residents of Maine, for example, typically pay much less - around $864. This is in stark contrast to the average total for Michigan residents, which rests in the neighborhood of $2,400. The actual total of one’s car insurance policy, in addition to geographic location, is determined based on a series of factors.
What Factors Determine the Cost of Car Insurance?
- Personal Details - Companies will inquire as to an applicant’s age, gender, and marital status. They will then compare them to the statistical likelihood of an accident for those of similar demographics.
- Place of Residence - If the city or state the applicant calls home has a disproportionate history of auto accidents, then offered rates may be higher. This may also be based on population density or weather patterns.
- Driving Patterns - From a risk perspective, the further and longer the applicant typically drives, the greater chance of an accident. Drivers who drive less, in this case, will be offered more favorable terms.
- The Policy - Within reason, this comes comes down to personal preference. While a majority of states will insist on liability and uninsured motorist coverage, they say nothing about personal injury or fully comprehensive coverage. Put simply, the more add-ons there are to a policy, the more expensive it will be.
- The Car - Again, this is a factor that comes down to personal preference. A safe, slow car with a historically low incidence of theft will yield lower car insurance rates. This is in contrast to high-speed hot rods with abysmal safety ratings.
- Credit History - By understanding an applicant’s past financial history, a car insurance provider will gain a sense of the risk associated with granting a policy. If the applicant has a history of tax liens, delinquent bill payments, and bankruptcies, then the insurance company will be less likely to offer favorable terms, if any.
- Driving Records - Again delving into an applicant’s past, one’s driving record suggests what type of driver the he or she is. Frequent accidents and speeding tickets will indicate irresponsible driving, and therefore, a greater risk to the insurance provider.
Why Your Premiums Are So High
Depending on how one fits into the factors that determine the cost of car insurance, the resultant premiums may reasonable or untenably high. In the case that one’s rates fall into the higher side of things, it’s best to determine the cause. By doing so, the situation can perhaps be tailored in order to lower to premiums to an affordable level.
Young, unmarried men who frequently drive within high-crime, population-dense areas, may want to consider moving or changing their martial status, for instance, as both actions would decrease their perceived risk in the eyes of the insurance company. The same holds true if the insured car is traded in for a safer, slower, or less-desirable model.
As far the policy’s concerned, high rates may be due to a low deductible, prior payouts, previously cancelled policies, and a lack of service bundling. Payouts and cancelled policies make insurance providers nervous, as it indicates a higher risk of losing money on the endeavor.
Furthermore, a dubious credit history, especially in conjunction with an abysmal driving record, is a major risk factor for insurance companies, and will contribute to inflated rates. Unfortunately, only time can heal those wounds, as on-time payment and safe driving going forward will drive premiums down eventually.
Five Things You Can Do to Lower Your Premiums
1. Compare insurance costs before buying a car
When buying a car, be sure to compare what it would cost to insure it. If deciding between a $35,000 car that would be more expensive to insure, due to its safety rating, then it might be worth considering the $45,000 model, which has a higher rating. Over time, the insurance cost differential may make the latter car a greater bargain.
2. Take advantage of discounts
As an applicant, take advantage of all possible discount avenues. Students, veterans, safe drivers, those with short commutes to work are just some of those who are eligible for insurance discounts. For a quick and easy way to lower premiums, this is it!
3. Engage in bundling
Another form of discount, bundling, refers to bringing all of one’s insurance-related business to a single company. If homeowners insurance, car insurance, and business insurance are all covered by the same company, then the organization will usually grant a collective reduction in cost as compensation.
4. Select a higher deductible
In the case of deductibles, it comes down to simple math. Their value is proportionately inverse to premiums. By selecting a higher deductible, premiums will decrease in kind.
5. Apply to different insurance companies
Plain and simple, if the insured feels as though his or her premiums are prohibitively expensive, then it's worth perusing other options in the industry to see if a lower-cost option is available. If this is the route of most interest, then our top 10 providers of auto insurance could be a great place to begin the search.