Car insurance is probably one of the first types of insurance you’ll ever buy. If you aren’t familiar with how car insurance premiums work, they’ll seem overly expensive. Unfortunately, this expense is required – unless you stop driving entirely. With that understood, let’s examine some of the reasons why car insurance is so expensive and let you know what you can do to reduce your insurance expense.

Table of Contents

  • How much does car insurance cost?
  • Reasons why car insurance is so expensive
  • Ways to reduce car insurance expense
  • Liability only vs. Full coverage
  • Final thoughts

How much does car insurance cost?

In the United States, the average price of car liability insurance is about $854 per year. However, full coverage costs quite a bit more at $2,218 per year. Of course, this doesn’t account for the variance in car insurance premiums which depends on factors like age, driving experience, and driving record. On average, car insurance premiums will make up about 2.4% of your annual income.

4 reasons why car insurance is so expensive

Insurers calculate car insurance premiums based on a variety of factors. The most important determinants of your insurance premiums will be your age and your driving record. Here’s a breakdown of the factors influencing the cost of car insurance.

1. Demographics

The most prominent cause of high insurance premiums for young people is their age and gender. Since young men under the age of 25 are statistically the riskiest drivers, they must pay higher insurance premiums. Furthermore, young people’s brains develop until 25, so it’s not unreasonable to ask younger people to pay more. On the other hand, males are expected to engage in riskier driving habits throughout their lives and consequently, they pay 12% more for car insurance over their lifetimes. People usually pay the lowest premiums in their 50s, after this, drivers are considered slightly riskier due to old age.

2. Driving Experience & Record

As you get older, your insurance premiums should decrease due to your experience. That is, provided you haven’t recently been found at fault for an accident. Those who have recently been involved in a crash they perpetrated pay about 42% more for car insurance. If you have infractions like DUIs on your driving record, this will only further diminish your reputation as a driver and increase your premiums.

3. Credit Scores

Interestingly, your credit score will affect your premiums almost as much as your driving record. Hence, a poor credit score might increase your premiums up to 61% more than the average. Unfortunately, the mathematics for how your credit score affects your insurance is hidden from the public. All we know is that they use your credit score to determine how likely it is that you’ll file a claim. On average, a poor credit score could add over $1,000 to your premiums.

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4. Insurance Fraud

Unfortunately, insurance premiums can increase for everyone as a small number of people abuse the system. There are cases of individuals who purposely crash their cars to receive a hefty insurance payout. Or, people lie about their address to pay a lower premium. This artificial increase in the number of claims will shift the premiums higher for everyone, not to mention, insurers want to disincentivize fraud.

4 ways to reduce car insurance expense

Naturally, you should shop around for car insurance. Don’t settle on the first policy you encounter. Get a feel for which plan suits your needs. Once you’ve selected a plan, there are often other measures you can take to reduce your insurance expense, such as:

  1. Drive a bigger vehicle, like an SUV or a minivan, because it is considered safer.
  2. Take defensive driving classes, many plans will offer a 10-15% discount for drivers who completed these classes.
  3. Equip your vehicle with a GPS device or other anti-theft device to track the movements of your car. This will reduce the risk of theft and hijackings leading you to pay a lower premium.
  4. Become a member of a union which offers you car insurance discounts.

Not all these options are open to everyone. Some might find that tracking their car with a GPS device is an invasion of their privacy. Others likely don’t have the means to purchase a new vehicle for the sake of lowering their insurance premiums. To spend less on car insurance, you’ll need to make a sacrifice somewhere.

Liability coverage vs. Full coverage

Of course, paying for full coverage is one of the biggest reasons why your car insurance is too expensive. The question is, should you only get liability insurance to avoid paying for full coverage? As we mentioned earlier, full coverage can cost you thousands of dollars and amounts to more than double car liability insurance. On the other hand, full coverage will offer comprehensive protection, there are trade-offs.

Liability coverage

If your insurance plan offers liability coverage, that means you are covered when you are liable for the damage. This is helpful if you injure someone in an accident or cause property damage. However, if you get injured in an accident yourself, liability coverage will not pay your medical expenses. Furthermore, liability insurance will cover any damage you caused to other vehicles or property, but you will be on the hook for damage to your vehicle. Since this is the most basic form of insurance coverage, many jurisdictions will require you to purchase it so you can use your car.

Full coverage

If you lease or finance your vehicle, full coverage is required. In any case, full coverage car insurance is comprehensive and covers everything in liability insurance but also covers damages to your vehicle and your health as well. Additionally, it’s common for full coverage insurance to include a deductible, meaning you might be on the hook for small repairs or injuries. If you want to make sure that you’re protected in the case of an accident, you should probably get full coverage. You don’t want to stress over medical bills when you’re already laid up.

While full coverage insurance is more expensive than liability insurance, you should also be wary of limits to your liability coverage. For instance, liability insurance might only cover a certain amount of medical expenses that you caused to someone in an accident. After you exceed that amount, you must pay for the expenses of the person you injured out of pocket. In the case of catastrophic accidents, full coverage will be the only type to take you all the way.

Final Thoughts

While liability insurance is strictly required, car insurance only becomes truly expensive when you opt for full coverage. If you’re a young male or a new driver, you’ll notice that your car insurance is quite expensive. After years of accident-free experience, your premiums will diminish every year. But you can also opt to take defensive driving lessons to receive a discount from the beginning. On the other hand, drivers who have recently suffered an accident will be regarded by insurance providers as a risk and will pay higher premiums as a result.

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