Why Car Insurance Is So Expensive

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ByMark Fitzpatrick
Edited byCasie McCoskey
ByMark Fitzpatrick
Edited byCasie McCoskey

Updated: May 20, 2024

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Your car insurance might be costly due to personal reasons like your driving record and factors beyond your control, such as economic conditions. Your state's minimum insurance requirements can also drive up the cost of your car insurance.

Shopping around for better rates and switching insurance providers can help you find cheaper coverage. Another way to lower your monthly rates is to lower your coverage limits and increase your deductible.

Factors That Impact Car Insurance Rates

Your car insurance rates might be expensive due to factors beyond your control, like rising repair costs and where you live. Your age, driving history, credit score, car model and coverage choices also all play a role in how much you pay.

Where You Live

Insurers evaluate risks to set their rates, considering location-related factors like:

  • Extreme weather events
  • Driver population
  • Car theft rates
  • Likelihood of accidents

Car insurance costs vary significantly across states. New Yorkers, for example, might pay an average of $2,043 annually, while Hawaiians could pay as little as $797. If your state mandates a high minimum car insurance requirement, even a cheaper car could result in higher insurance costs.

Data filtered by:Results filtered by:
Coverage:Full Coverage
AlabamaAnnual Premium$852Monthly Premium$71
AlaskaAnnual Premium$849Monthly Premium$71
ArizonaAnnual Premium$1,078Monthly Premium$90
ArkansasAnnual Premium$932Monthly Premium$78
CaliforniaAnnual Premium$1,343Monthly Premium$112
ColoradoAnnual Premium$985Monthly Premium$82
ConnecticutAnnual Premium$1,305Monthly Premium$109
DelawareAnnual Premium$1,640Monthly Premium$137

The cheapest car insurance companies in most states for full coverage car insurance are Auto-Owners and American Family.

Even within a state, car insurance can vary by city. Places with more drivers and traffic congestion might see higher premiums due to the increased risk of accidents. So, even if a company is the cheapest overall in a state, there might be more affordable options in your specific city.

Your Insurer

The cheapest company can vary by driver. Insurers weigh factors like age, location, accidents and credit score differently.

Car insurance discounts also play a role, with each company offering unique deals with different eligibility criteria. So, the best option depends on your profile and the discounts you qualify for.

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  • Compare at least three car insurance quotes
  • Check out any discounts offered by your insurer
  • Select only the coverage you need, avoiding unnecessary add-ons
  • Consider telematics insurance programs, which can track your driving habits for potential savings

Lowering your deductible can save on premiums, but be prepared to pay more out-of-pocket if you need a repair. Reducing coverage to state minimums can also bring costs down but leaves you less financially protected in an accident.

Your Age and Gender

Young drivers, even those with spotless records, pay significantly more on average for car insurance than older drivers with a history of accidents.

Gender also impacts rates until around 25, after which the difference is minimal. Assuming a clean record and good credit, expect rates to drop until age 75, when they may gradually increase again.

The cheapest car insurance companies by age are:

For the cheapest car insurance for teens, adding them to your existing policy is the way to go. A teen on their own policy could pay double, making it wise to keep them on your plan for significant savings. Student discounts can also help offset the cost of insuring a teen.

Your Driving Record

Car insurance companies charge more for drivers with violations on their records, and the price hike depends on the severity of the offense.

In New York, full coverage costs an average of $4,287 annually for a history of tickets and jumps to $5,982 for a DUI. In contrast, a clean-record driver pays just $3,433 for the same coverage.

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Even the safest drivers can face high car insurance rates due to factors beyond their control. These include where you live, rising repair costs, more extreme weather events and even your credit score (in most states). To combat this, consider switching car insurance companies and reassessing how much insurance you need as life changes occur.

If finding coverage is challenging, consider non-standard auto insurance companies. They focus on insuring drivers who may have difficulty getting coverage from traditional providers.

Your Credit Score

In most states, your credit score can impact your car insurance rates.

For example, MoneyGeek found that in Michigan, drivers with low credit scores pay a whopping 145% more than those with good credit — a difference of $2,405 annually. Meanwhile, California, Hawaii, Massachusetts and Maryland banned using credit scores to set car insurance rates.

Good credit scores demonstrate financial responsibility, impacting insurance rates. Improve your credit by paying bills on time, automating payments and resolving any errors on your credit report.

Your Car’s Make and Model

Insurer rates consider factors like your car's age, repair costs and theft risk. Getting a sleek new car with all the latest features is exciting, but your insurance premiums might take a hit because:

  • Repairs add up: Advanced tech in modern cars drives up repair costs after an accident. Insurance companies factor this cost into your premiums.
  • Full coverage gets expensive: Protecting a new investment means opting for full coverage insurance. This comprehensive protection costs more than the basic liability coverage that is often enough for older cars.
  • Financing requires full coverage: If you're financing your car, the lender will likely mandate full coverage with higher policy limits, increasing your costs.

Overall, newer models typically come with higher insurance premiums than more basic cars, which are usually the cheapest cars to insure.

Your Coverage Level and Policy Limits

Higher coverage limits mean higher car insurance premiums. Insurers pay more for extensive repairs or a totaled car, so they charge you more to offset that risk. Opt for liability-only coverage for a lower rate, but remember it only protects others, not your own vehicle.

To avoid overpaying for car insurance, consider the 10% rule: If your annual premiums exceed 10% of your car's actual cash value, explore downgrading your coverage. This could mean removing add-ons, lowering policy limits or increasing your deductible to reduce premiums if your vehicle has affordable repair costs.

Getting quotes from at least three insurers can slash your annual rate. Use online car insurance calculators to compare rates quickly and maximize savings.

Other Economic Factors

According to the Bureau of Labor Statistics in its Consumer Price Index (CPI) report, car insurance is 22% more expensive this year compared to last year. This makes car ownership increasingly costly, driven by these key factors:

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    Car Repair Costs

    The cost of everything involved in car repairs has soared. Supply chain disruptions, increasing technology in modern vehicles and a skilled labor shortage all contribute to higher repair bills. Insurers pass these expenses onto customers in the form of increased premiums.

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    Extreme Weather Events

    Climate change is fueling more frequent and severe weather events. In 2023 alone, the U.S. experienced 18 billion-dollar disasters, including hurricanes, floods and wildfires. This translates to more claims for insurers and, in turn, higher premiums to cover those costs.

Unfortunately, experts predict these extreme weather patterns will continue. This suggests car insurance rates may stay elevated, making it even more important to shop around for the best price and consider ways to reduce your premiums.

How to Lower Car Insurance Rates

Beyond taking advantage of car insurance discounts, collecting and comparing at least three car insurance quotes will help you find the best deal. Changing how you handle your payments or streamlining insurance needs could unlock even more savings.

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    Comparison Shopping

    Get quotes from multiple insurers. This is the single most effective way to find savings. It's best to complete this step before your policy renews and, ideally, every year. As you switch car insurance companies, you might find you don't need as much coverage, or there are add-ons you never used or needed.

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    Seek Out Discounts

    Prioritize comparison shopping, but car insurance discounts are the second-best weapon against high premiums. Ask about every possibility, such as discounts for safe driving, being a good student, bundling policies, paying in full or enrolling in autopay. Insurers have loads of discounts, and even small ones add up. The best home and auto bundles can save you significant cash.

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    Safe Driving Matters

    Avoid accidents and tickets, as they raise your rates. Many insurers offer claims-free discounts after a set period (often five years) of accident-free driving, further reducing your premium.

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    Improve Your Credit Score

    Better credit can translate to lower insurance rates in most states.

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    Consider Usage-Based Insurance

    Telematics programs monitor driving habits and can reward safe driving with discounts if you're confident in your skills behind the wheel.

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    Switch to a Cheaper Car

    Older, less expensive cars are cheaper to insure. If you finance or lease your car, remember that lenders typically require full coverage, which is pricier than basic liability.

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    Increase Your Deductible

    Choose a higher car insurance deductible (the amount you pay out-of-pocket before insurance kicks in) in exchange for a lower monthly premium. This is especially smart for older cars with low repair costs.

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    Lower Your Policy Limits

    If you own your car outright and its value is low, consider lowering your coverage limits. Just make sure you're comfortable with the potential financial risk.

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    Rethink Your Claims

    Filing a claim can lead to a rate hike. If the damage is minor and you can afford the repair, sometimes it's cheaper to pay out-of-pocket in the long run.

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    Military or Professional Affiliations

    Check if you qualify for discounts through your profession or military service.

Where to Find Cheap Car Insurance Coverage

If traditional car insurance rates are breaking the bank, don't worry. Depending on your profile and location, there are ways to find more affordable coverage.

Cheapest Car Insurance Companies

The cheapest car insurance companies for the average driver are:

  • State Farm: $74 per month, around $883 per year
  • Nationwide: $78 per month, around $930 per year

If you’re still struggling to afford coverage, sign up for basic coverage — it satisfies your state’s legal requirement and keeps you covered. Telematics programs or usage-based car insurance are other terrific options for drivers who don’t drive often.

Data filtered by:Results filtered by:
Coverage:Full Coverage
State FarmAnnual Premium$883Monthly Premium$74
NationwideAnnual Premium$930Monthly Premium$78
GEICOAnnual Premium$936Monthly Premium$78
TravelersAnnual Premium$1,037Monthly Premium$86
ProgressiveAnnual Premium$1,120Monthly Premium$93
AllstateAnnual Premium$1,124Monthly Premium$94
FarmersAnnual Premium$1,192Monthly Premium$99

State-Funded Low-Income Car Insurance Programs

California, New Jersey and Hawaii offer specialized car insurance programs for low-income drivers. Maryland provides a program for those repeatedly rejected by private insurers.

These programs often have income limits tied to the Federal Poverty Level (FPL), which changes annually. Be sure to confirm your eligibility before applying.

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    California Low-Cost Auto Insurance (CLCA)

    This program offers liability insurance for drivers with good driving records whose income falls within 250% of the FPL. To qualify, you'll need to be at least 16, have a valid California driver's license and have a car valued under $25,000.

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    New Jersey Special Automobile Insurance Policy (SAIP)

    Also known as the "dollar-a-day" program, SAIP provides medical-only coverage for low-income drivers enrolled in federal Medicaid with hospitalization. It covers emergency medical treatment up to $250,000 after a car accident and includes a $10,000 death benefit.

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    Hawaii Aid to the Aged, Blind and Disabled (AABD)

    This program offers financial assistance for auto insurance in Hawaii. To qualify, you must be 65 or older, legally blind, totally and permanently disabled or live with/care for someone receiving AABD assistance. You must also have an income below 34% of the current Federal Poverty Level.

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    Maryland Automobile Insurance Fund

    While not specifically a low-income program, this fund assists drivers whom private insurers have repeatedly rejected. You may qualify if you've had policies canceled, have poor credit, have a history of traffic violations or are considered a high-risk driver.

Low-income drivers may also find financial help for car insurance through CURE Auto Insurance (good driving history required) or charities offering assistance with bills. These programs can free up income to cover insurance premiums. If you need help finding local programs, try using an online charity locator tool.

FAQ About Why Car Insurance Is So Expensive

If you're wondering why your car insurance premiums are so high, you're not alone. Car insurance rates are rising, but there are reasons behind the increase. Here, we tackle the most common questions about rising car insurance costs.

Why is car insurance getting so expensive?
What factors impact the cost of car insurance?
Why are some cars cheaper to insure?

About Mark Fitzpatrick

Mark Fitzpatrick headshot

Mark Fitzpatrick has analyzed the property and casualty insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. Currently, he leads P&C insurance content production at MoneyGeek. Fitzpatrick has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.