Auto insurance premiums are nearing all-time highs, with the typical driver paying an average of $1,548 a year, up 2% from last year, according to an analysis by insurance comparison site The Zebra.
Those higher insurance costs are contributing to a bigger spending issue. American drivers spend record amounts on their cars, with monthly costs of nearly $775 for car payments, fuel, depreciation, insurance, and other expenses, according to data from AAA.
Understanding your auto insurance bill and how it's calculated may be the key to keeping your costs under control.
Overall, cars are more expensive than they were, say, 10 years ago, both to buy and maintain. That's partially due to regulations relating to government-mandated safety features, like airbags, back-up cameras, and blind-spot monitors, as well as new voluntary but popular pieces of on-board technology, like touchscreen entertainment and navigation systems.
When a car is more expensive to own, it's more expensive to repair, maintain, and insure.
"The cost to repair vehicles has grown," says Raymond Farmer, president of the National Association of Insurance Commissioners. "Vehicles and have sensors, cameras, and expensive technology. What used to be relatively small-dollar repairs can now be extremely expensive."
Farmer adds that the main things that are driving up insurance rates are the frequency and severity of claims. People are driving more than at any point in the past decade, he says, and are getting in costly accidents more often.
Although insurers take a number of factors into account when determining your auto insurance premiums — including your age, gender, driving record, and credit history — perhaps the two most important factors are what type of car you own and where you live.
For example, The Zebra's analysis shows that insuring a Ford F-Series pickup truck costs, on average, $1,617 per year. But insuring a high-end luxury car, like a Maserati Quattroporte, costs $4,742 per year. Location matters too: The average annual rates in Idaho amount to only $1,164, whereas in Louisiana, they're $2,379.
While you may not be ready to move or to trade in your current vehicle, there are a few easy things you can try to save some money on insurance:
- Car shop with insurance costs in mind. If you're shopping for a car, experts recommend that you avoid luxury brands and buy pre-owned. Pre-owned cars cost considerably less and can therefore be cheaper to insure. Luxury brands, with higher sticker prices, tend to come with higher insurance costs. Call or email your insurance agent with a list of the models you're considering to get an estimate of the cost to insure each.
- Work on improving your credit score. One factor that insurers look at when calculating your rate is your credit score — and boosting that number could affect how much you pay for insurance. Making on time payments and reviewing your credit reports for errors can help you maintain a higher score.
- Increase your deductible. The higher your deductible, the lower your premiums. Typical savings can be 15%-30% a year. But keep in mind that raising your deductible is a bad idea if you don't have enough in savings to cover it.
- Look for discounts. Auto insurers may offer discounts for safe driving, low mileage, military service, professional group affiliations, and more, so ask if you can get a price break. Some insurance companies are also using monitoring systems, often called usage-based policies, to keep tabs on drivers' habits, and offering discounts to those who take fewer risks on the road. Industry data shows that some drivers can save as much as $130 per year by signing up for a usage-based plan.
- Compare prices with several carriers. Experts recommend you shop for insurance every year to make sure you're getting the best deal. One report found that the savings could add up to more than $400 a year.
"I'd encourage drivers to make sure they have inquired about all available discounts and also that they shop around with different carriers to find the best policy that suits their needs," says Farmer.
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