The True Cost of Car Insurance

The true cost of car insurance depends on far more than just your driving history.

Auto insurance costs vary widely based on your age, driving record, location, credit, and vehicle. Zatevakhin Aleksei/Shutterstock

The true cost of auto insurance encompasses national averages and personalized premiums. And it’s a cost that can add up to being one of your biggest monthly expenses.

There are many ways that an auto insurance premium is calculated. From location to vehicle type, there are factors, besides a clean driving record, that go into determining a premium. But knowing the average premium amount may help you when it comes to shopping prices or buying a car.

Average Car Insurance Premiums

Auto insurance premiums are based on what coverage you purchase. You can choose liability only or full coverage. Full coverage comes with many options that can add to the premium.

According to U.S. News, the average annual cost of car insurance in the United States is $2,524 per year. But this number only tells you part of the story. Each state has a different rate.

For example, the average annual premium in Wyoming is $1,357 while the average premium in Louisiana is $3,860. California falls near the national average with a $2,479 average premium.

Keep in mind these are averages. There are multiple factors that can influence the true cost.

Age Affects Car Insurance Premium

Age affects the premium cost. According to Lending Tree, an 18-year-old purchasing full coverage will pay, on average, $497 per month, while a 30-year-old will pay $177 per month. The difference is because insurers see young drivers as high risk due to their lack of experience behind the wheel.

Driving Record Impacts Premium

A speeding ticket can also inflate the premium. The cost of insurance can increase by 24 percent if the driver has a ticket.

Drivers with an at-fault accident on their records pay 50 percent more than the average driver with a clean driving record.

A DUI (driving under the influence) conviction will inflate a premium. If you have a DUI conviction, plan on paying 86 percent more for insurnce than a driver with a clean driving record. A DUI stays on your insurance record for three to five years. You’ll probably be paying the higher rate the entire time.

Bad Credit Score Impacts Premium

Your credit score can also impact your car insurance premium. Drivers with poor credit pay, on average, 95 percent more than those with good credit for the same insurance policy. So, the incentive is there to maintain a strong credit score.

Vehicle Usage Affects Premium

According to Progressive, people who use their vehicles for commuting or pleasure have lower premiums than those who use their vehicles for commercial or other purposes.

If you use your car for ridesharing services such as Uber or Lyft, the insurer may charge more, and it may even require you to purchase rideshare insurance coverage.

Location Determines Premium

Your location is also an important factor when determining your premium. If you live in a populated urban area, you’re at higher risk of car theft or vandalism. You’ll probably end up paying more for comprehensive car or collision insurance as a result.

Also, different states have different coverage requirements. This includes how much liability coverage you’re required to carry. This could inflate the cost.

Vehicle Type a Major Factor

The starting point for auto insurance is what type of vehicle you want to insure.

According to Kelley Blue Book, typically, the more expensive your car is, the higher the premium. Remember, the insurance company is responsible for repairs up to the car’s actual cash value.

That means if it’s damaged and you carry collision and comprehensive coverage, the more the car is worth, the more the company will have to pay to cover the market value if there is a “totaled” claim.

The insurer will charge you more to compensate for the higher risk.

The cost of repairs is also a determining factor. A Mercedes costs a lot more to fix than a Honda. So, you’ll be charged a higher premium.

Beyond repairs, the make and model affect premiums. For example, sports cars and other performance vehicles tend to be driven faster since they’re built for speed. This increases the risk, and you are charged for it.

Electric vehicles are usually more costly to insure as well. They have a higher purchase price, which translates into higher replacement cost. They also have 17 percent more claims filed than combustion engine vehicles.

Trucks and SUV owners are often charged more because these vehicles are heavier than standard cars. They can cause more damage in an accident.

Safety features may help with your premium, but if they are too high-tech, it might work in the opposite direction. That’s because they may be expensive to repair, and that could increase the cost.

Antitheft features will help with your premium. These include GPS tracking, an ignition shut-off switch, and an alarm system.

Know Insurance Cost Before Purchasing

If you know the car you want to purchase, obtain an insurance quote before making a purchase. Although you don’t need to own the car for a quote, you’ll need some details about it.

Supply your insurance agent with your driver’s license number, year, make and model of the vehicle, vehicle identification number (VIN), and number of miles you expect to drive each year. The car dealer can provide some of this information.

And by doing this ahead of time, you may avoid some sticker shock after you purchase the car.

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