Car Insurance in America: Why Is It So Expensive?
Car insurance, whether you’re a new driver or not, is something we all need to understand at one point or another. Not just to save some money, which is a must in America, but also to know what you’re purchasing and how much coverage you have.
What Is Car Insurance?
Let’s begin with a definition. In essence, car insurance is an agreement between you and an insurance provider of your choice about what would happen if you get in a car accident. It protects you from taking a huge financial hit in the event of an accident because your policy will cover related expenses. This, according to the coverage and the limits that are stated in your contract.
In other words, a car insurance policy is a contract that defines the costs your insurance company is responsible for and under what circumstances. All you have to do is pay your monthly premium.
The basic concept of car insurance is very easy to understand, but accidents are not quite as straightforward. That’s why you need to know what your car insurance policy entails and how you benefit from having one.
How to Get Car Insurance?
If you want to get yourself a car insurance policy, it all starts with a quote. A quote is an estimate and it’s defined by your personal information, including your history, the kind of car you have and the type of insurance you want to purchase. Quotes are usually free and you can get them online pretty quickly.
The next step is to choose the kind of insurance that’s best for you. Liability insurance is mandatory in the US, but the required coverage amount and type depends on the laws of your state. Some drivers settle for this kind of coverage, but others want additional coverage. There’s also specialized policies available, such as Classic Car Insurance, which is perfect if you have a classic car with unique needs to be covered.
Now it’s time to select your deductible amounts. Deductibles are what you will be responsible for paying if you get in an accident before your insurance kicks in. For example, if you have a $600 deductible but the damage on your vehicle is worth $1200, you need to pay the $600 first and then your insurance provider will take care of the rest. Usually, high deductibles mean the premium will be lower, but you’ll have to pay more out of pocket in the event of an accident.
All there’s left to do is purchase your car insurance. You can either pay the annual premium right away or pay your monthly premium. After this, make sure you always carry your insurance card on you when you hit the road.
If you get into a car accident, you’ll need to file a claim, which is the process of providing all the information about the accident so your insurance provider can determine whether or not your policy covers the damage and how much they will reimburse.
Now, to the big question:
Why Is Car Insurance So Expensive in America?
In America, the average annual cost of car insurance is a little over $1,300 according to Quadrant Information Services. However, this number doesn’t actually tell you how much you’ll need to pay. Rates vary wildly from state to state. In Michigan, you’ll find the most expensive rate, at $2,000, while Maine, Idaho and Ohio all average under $950 a year.
To understand why car insurance is so expensive in America and why it varies so much, we need to understand what are the factors insurers use to calculate cost. These factors are both changeable and unchangeable. Key factors include: gender, age, marital status, location, job, and credit score.
Men are universally considered risky driver, so insurance will be slightly higher for them than for women. If you’re under 25 or a senior, your premiums will also be a bit more expensive because you’re considered a riskier driver. If you’re single, you’re also considered a riskier driver. Marriage signals to insurers that you’re thinking for two or more people, which means you’ll take less risks on the road.
Location is also a defining factor because depending on how populated your area is, you’re more or less likely to get in an accident. Also, if your state’s standards for car insurance are stricter, it’s likely you’ll need to pay more. If you live in an area where natural disasters are common, your premium will be more expensive as well.
The job you have will also help insurers determine your premium. If you use your car for work, such as a taxi, your insurance will be more expensive. Last but not least, your credit score will also determine how expensive your premium will be. A high credit score means you’re not a huge financial risk, so insurers will relax.
It should go without saying, but your driving history and habits will also determine how expensive your car insurance will be. If you’re prone to getting tickets on the road, it means you’re a risky driver and you’ll see that reflected on your premium.
Why Is Texas Car Insurance Getting So Expensive?
Texas auto insurance is quite expensive. Texans pay around 26% more than the average because the rate is as $1,810 per year. But why is that the case? Remember that insurers look at many different factors when they’re calculating your rate. The resulting price will depend not just on the insurer, but also on key factors.
One of those key factors is population. Texas is the second most populated state in America and most of the population is found in the areas of Houston, Dallas-Fort Worth and San Antonio-Austin. Car insurance in urban areas is more expensive because there are more risks of accidents.
Texas also has higher speed limits at 78.3 MPH because it allows them to deal with traffic congestion. However, higher speed limits means there’s higher chances of car accidents, which means your rates will rise. In Texas, people also have longer commutes, which means they spend more time in traffic on average. This increases the risk of accidents and thus your premium.
Texans also drive a lot more, so the more you drive, the higher your insurance rate will be. This is because the longer you spend on the road, the more you risk getting in an accident. But perhaps the most important factor are natural disasters. Texas is the number one state in the US where natural disasters are more frequent and varied, including hail storms, flooding, hurricanes and wildfire. This, of course, will rack up the price.
Why Is Colorado Auto Insurance Getting So Expensive?
Car insurance quotes in Colorado are a bit more expensive than average. The standard rate a year is $1,435, which is 0.6% above the national average. In Colorado, premiums rose at the third-fastest rate in the country in the past six years. For individuals, premiums vary greatly depending on miles drive, the kind of car you have, your record and the type of coverage you seek.
The increase is due to many different factors. One of them is bad weather in recent years, which have caused heavy hailstorms more than anything. This increases the price of premiums because insurers have had to cover large payouts. Lower gasoline prices are also a factor because it results in more people on the road. More traffic means higher risks of accidents.
Bad driving habits such as distracted driving continue to be a problem. Vehicle repair costs are also a main factor. Newer cars feature more expensive sensors and cameras that are designed to reduce the risk of accidents. However, repairing them is a lot more expensive than it used to be. The fact that 16% of drivers in the state are uninsured is also a factor that contributes to the rise in prices.
Why Is California Auto Insurance Getting So Expensive?
California auto insurance is also one of the most expensive ones in the country, and it actually comes as no surprise. This is a big state after all, with a population of 39.54 million people. When you consider that there are currently 325.7 million people living in the US, that number is quite outstanding.
On average, California drives spend $1,962 a year on insurance rates. This is the 7th most expensive states when it comes to car insurance. Even so, rates vary widely depending on the area you live in. The most expensive cities include Modesto, Paramount and Huntington Beach, and the least expensive ones include Newbury Park and Fullerton, where drives pay up to $300 a year.
One of the reasons Californians pay more is that the risk of accidents on the highway is a lot higher, especially during rush hour because there are a lot of people on the road. The I-405 is one of the busiest highways in America, so if you frequent it, your premiums will be higher.
Population is another factor because the more residents, the more people sharing the road, which means there’s a higher chance of accidents as well as theft, vandalism, dents, and hit and run accidents. Premiums in urban areas are a lot more expensive, and this is why.
Californians also choose to drive more than they choose to use public transportation. Only 5.3% of Californians commute on public transformation, so this means there are a lot more cars on the road.
Because rates are so high in California, it means that there are more uninsured drivers out there. This is also a factor that affects insured drivers because, for insurers, this means there are more risky drivers on the road than average. All of these factors together contribute to the fact that Californian car insurance is quite the expense.
Why Is Michigan Auto Insurance Getting So Expensive?
Michigan auto insurance is known for being the most expensive in America. The average premium here is 64% higher than the national standard. Drivers are paying $1,300 on average, which is $346 higher than the national average. One of the main reasons car insurance is so expensive in Michigan is because the state has a no-fault car insurance scheme where all drivers must have a Personal Injury Protection (PIP) coverage.
What PIP means is that drivers can recover financial losses from their insurer no matter who’s at fault. In other words, your insurer must pay your medical bills even if the collision was not your fault. What makes this no-fault policy so unique in Michigan is the fact that the coverage is limitless. This means that insurers must guarantee unlimited lifetime medical benefits for people who get injured during a car accident. To do that, insurance companies have to pay up to $555,000. The funny thing is that PIP coverage was meant to reduce car insurance prices and prevent insurance fraud, but the exact opposite has happened.
Car insurance is truly a necessity for all. You never know when you can get in an accident and having an insurance company back you up in case it happens takes an incredible weight off your shoulders. It also makes you a more responsible driver.
However, insurance rates in America can get quite high. This is due to many different factors, including the state you live in. In fact, prices not only vary from state to state, they also vary from city to city. Whether that’s because of population density, gas prices, etc., the fact is that many things determine how much you have to spend.
The best thing you can do to save money on car insurance is to do your research. Get as many quotes as you can and compare the value to benefit ratio before you sign on the dotted line. Many people also consider purchasing car insurance out of state, especially people who live in the most expensive states for car insurance. Either way, take your time and take everything into consideration before you make a decision!