Why Is My Auto Insurance Premium So High?

Some months, just keeping gas in the tank and staying on top of car insurance premiums can feel like an insurmountable task. If you’re taking out a payday loan just to keep up with your auto insurance, you might be wondering, ‘why is my car insurance so expensive?’ Quickly followed by, ‘how do I lower my car insurance rates?’

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      [Read: The Best Car Insurance Companies of 2020]

      First off, there are known factors that can increase your insurance rates. Examples of this are having a long history of car accidents or poor credit health. While some of these factors are out of your control, like age and gender, others can often be worked in your favor.

      [Read: Where to Find Financial Relief During the Covid-19 Pandemic]

      Factors that determine high insurance costs

      Why is my car insurance high? Insurance companies calculate premiums based on how risky or costly they believe the driver will be. The eight factors listed below are some of the key indicators used by insurance companies to make these calculations.

      #1 Your driving record

      When you get a ticket for a traffic violation, the real cost isn’t as simple as paying it off and being done. These events go into your driving record, where insurance companies will see them as an indication of risk. The more incidents you have on your driving record, the more expensive you will be to insure, and the higher your premiums will be. To avoid these extra costs, maintain a clean driving record, which will also land you a discount with most car insurance companies.

      #2 Too many claims

      The more claims you’ve filed, the more likely you are to file a claim. This simple logic plays a significant role in how an insurer determines how much it’ll cost to insure you. When you have a history of filing claims, it implies that you are likely to have an accident and file a claim on that accident. This forecast is reflected in the costs of your premiums as the company wants to make sure they aren’t charging you any less than they might end up paying for you.

      #3 An inconsistent credit history

      Credit scores are used by insurers to calculate the likelihood of both cost and risk. Statistically, the lower a credit score, the more likely an individual is to file a claim. Conversely, the higher a credit score, the more likely an individual is to pay their premiums on time. Auto insurance is just one of many industries that uses credit histories and scores to screen their customers and determine rates.

      #4 How much you drive

      The more you drive, the sooner you’ll realize low-odd situations, like a car accident, speeding ticket or even weather damage. Insurers see high levels of driving as a risk factor for this reason. The more often you drive, the more likely they are to be called upon for an insurance claim. Think of it like this, for every mile you drive, there is some small statistical chance that you’ll have an accident. In this situation, take advantage of any safety feature or safe driving discounts you can to offset the frequency with which you drive.

      #5 You live in a costly area

      Two critical variables are increased urban density and the cost of cars in the area. Each can lead to an increase in premiums. The higher the urban density, the more traffic there is. This can lead to more accidents in the area. Additionally, more expensive neighborhoods tend to have more valuable vehicles, which may end up costing your insurer if you have an accident with your neighbor.

      #6 Your car isn’t safe

      The more likely your car is to have an accident — and the more likely you are to get hurt while driving it — the more the insurance company is going to charge. Safety features like anti-lock brakes and airbags can help lower premiums by reducing the risk of getting injured in the event of an accident. Inversely, cars with older technologies or that have fallen into disrepair can be expensive and difficult to insure.

      #7 Your age

      Age plays a significant role in the determination of insurance premiums. In general, younger people are more likely to have car accidents and receive tickets for traffic violations. One way young people can avoid some of this increased cost is by staying on their parent’s insurance for as long as possible. Beware of constant-changing laws, but it is possible to stay on your parent’s insurance as a dependent until the age of 25. Car insurance fluctuates significantly depending on your age group; high costs when you’re young, lower costs when you’re in the middle of your life and higher costs again when you are elderly.

      #8 You’ve canceled auto insurance before

      If you have a history of canceling auto insurance, future car insurance companies are going to be wary of taking you on as a customer. If they don’t expect you to stay a customer for long, they’ll want to make their money at a quicker rate, which means higher monthly rates. Depending on the insurer and how many times you’ve canceled previous policies, some insurers may refuse to cover you.

      [Read: Our Guide to Car Insurance]

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      What types of discounts do insurance companies offer?

      Now that you have a solid understanding of what factors go into calculating your auto premiums, it’s time to think about discounts to bring that rate down further. Most auto insurance companies offer a variety of discounts on their policies. Some of the most common discount types are detailed below.

      [Read: The Best Cheap Car Insurance Companies of 2020]

      Car safety discounts: Cars can vary a lot when it comes to safety. From anti-lock brakes to help prevent collisions, to airbags that aid in protecting drivers and passengers, vehicle safety features can make your car eligible for a discount. Different companies may apply this discount to separate elements of your policy. State Farm, for instance, only applies their vehicle safety discount to medical coverage.

      Good driver discounts: Remember how a bad driving record resulted in a higher rate? Well, the opposite is true, as well. Many companies will offer a discount to drivers who have a driving record devoid of accidents, tickets and claims — Geico being one of those companies. It provides a good driver discount of up to 26% off for customers who haven’t had a car accident in at least five years.

      Compare Affordable Auto Insurance Rates

      Save money on auto coverage with our simple comparison tool.

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      We found results in
      Click at least 2-3 companies to find the very best rate.

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        Online quote discount: Some car insurance companies have started offering discounts for completing your application and quote process online. For example, Progressive offers up to 4% off when the process is completed online. Doing this online saves the company money, and they pass some of those savings back to the customers that make it possible.

        Multi-car discounts: In general, when you insure more than one vehicle with a company you will receive a discount on the premiums for that policy. Travelers auto insurance offers up to 8% off on policies that insure more than one vehicle.

        Occupational discount: What you do and where you work plays a role in how you drive — from frequency to distance, and more. The less often you drive and the safer the environment, the less risk you represent to the company. In some situations, companies may choose to offer occupational discounts as a form of support. Liberty Mutual provides occupational discounts to educators, for instance.

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        Joshua Cox-Steib

        Contributing Writer

        Joshua Cox-Steib is a personal finance contributor. He lives in Tulsa, Oklahoma, with his wife and their three pets. He spends his spare time reading, writing, and gardening. Find out more on Joshua Cox-Steib at www.jcswriting.com.