Owning a car has become a necessity for many people. The increase in population and the long distance between work and home have resulted in a burden on public transportation. Many would like to have a car of their own, but some expenses add up, and one of the most troubling questions is, why is auto insurance so expensive?
Beyond the convenience that it may bring, owning a car is still a luxury. It involves not only the cost of the down payment but also maintenance, repairs, gasoline costs, and other aspects. The insurance price is not far behind since the average annual fee is $1,555 in the United States.
Many factors drive vehicle insurance premiums up and, in some cases, out of control. There is always something that can be done, such as improving some aspects. However, high insurance premiums are a necessary evil for protecting a valuable asset and, above all, the crew members’ lives.
Aspects that raise the cost of a car insurance policy
Auto insurance rates are set according to several aspects. Companies take into account driving history, age, credit score, car model, type of coverage needed, and others.
If a person has a bad driving record, they can take a defensive driving course, effectively reducing the rate. Do not despair; finding insurance is a task that takes dedication; it is best to compare quotes from different insurers to find a low premium.
To understand why car insurance is so expensive is necessary to know what are the factors that add up to the cost of premiums.
1. Zip Code
Insurance providers look primarily at the applicant’s place of residence. Auto insurance quotes vary by state. For example, Michigan requires every driver to have personal injury protection coverage.
The requirement in that state is because 20% of drivers on the road are uninsured motorists, so fraud is rampant. Michigan has the highest auto insurance rate in the country.
Insurance companies tend to evaluate vehicle theft and car accident rates by zip code to determine if there is a higher risk of filing an insurance claim. In the case of Maine and New Hampshire, rural states, applicants receive low insurance premiums, as opposed to California or Massachusetts. With larger populations, higher fees are not uncommon.
2. Demographic Profile
It is not good to move to save money on auto insurance, nor is it good to get married to reduce premiums, although marital status is an important factor in quoting. Demographic traits lead to high premiums; for men, rates are slightly higher than for women.
Age plays an important role. Young drivers under 25, especially teenage drivers, are considered high-risk applicants because they pay excessively high rates compared to more mature clients in the same location.
3. Driving record
It is a determining point. Insurance companies look closely at your driving record. You will be rated as a high-risk driver if you have speeding tickets, an IUD, an at-fault accident, and traffic violations. To avoid high rates, you should stay away from accidents and maintain a clean driving record for at least five years.
4. Type of vehicle
The type of vehicle is important to know the number of insurance rates. New cars have a higher insurance cost than older cars. Vehicles with updated safety features get better liability insurance and personal injury protection coverage rates than those without.
When purchasing collision coverage, the vehicle’s value will automatically be related to the insurance cost. Premiums will be higher if replacing or repairing the car is expensive. If it is comprehensive coverage, some cars are easier to steal than others, and if you drive a vulnerable vehicle, you may have to pay more.
One of the reasons why car insurance is so expensive is if you are overinsured. You may be paying for a full coverage policy and other types of coverage that you don’t need, for example, supplemental uninsured motorist coverage or roadside assistance.
Of course, high coverage limits mean paying increased insurance rates. Having limited assets means no need to purchase high limits of liability coverage. Ensure you don’t have a full coverage policy when only liability insurance is sufficient.
6. The deductible
Having a very low deductible raises insurance rates. If you want to reduce your insurance premiums, take a higher deductible. The difference will be minimal. Just be sure you can afford to pay the new deductible; it can be from an emergency savings account if necessary.
Is vehicle insurance necessary?
Cars are a marvel of innovation and technology, yet they have the potential to cause significant damage. That is when difficulties with repairs led state governments to generate compulsory insurance laws to protect the people involved.
In that sense, drivers pay insurance companies monthly or annual rates, known as insurance premiums, to receive specific coverage in the event of an accident. The choice of ranges or the type of policy you wish to purchase makes a difference in the cost of insurance.
- Liability coverage: can be civil or casualty; it is the most common type of insurance since it is mandatory. It is a basic policy and compensates for damages caused by the insured driver. Cost varies according to the state and can be increased if desired. It is usually divided into three categories (bodily injury per person, bodily injury per accident, and property damage).
- Comprehensive Coverage: This type of coverage is incorrect and sometimes misleading. It gives policyholders a false sense of security, as it does not exist but can be achieved with the right combination of insurance packages.
- Uninsured/underinsured coverage: when another driver causes the accident, the insurance company is obligated to compensate you financially for the damages. But if the driver is uninsured, you have the time-consuming and costly option of pressing charges. To avoid this, companies offer a type of policy that covers expenses in full, whether the responsible party is uninsured or underinsured.
- Loan or lease coverage: created to protect drivers from unreasonable costs in cases where a vehicle is totaled in an accident. While you pay for the new car, the amount will be greater than its actual value since it loses 10% to 20% of its value when it leaves the dealership. GAP coverage protects the car’s value in the event of an accident, ensuring that drivers do not have to pay.
It is easy to determine why car insurance is so expensive; insurance companies bet on the probability that the client may suffer an accident. Over the years a lot of experience, statistics, and accident data have been accumulated, resulting in the proper estimation of the risks.
When different scenarios or specific situations arise, prices are adjusted. Combining several insurance packages makes it possible to calculate the probabilities of various events and apply them to each scenario. It includes car repairs, which, compared to previous years, are now more expensive due to advanced technology.