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Car insurance costs an average of $1,202 per year, according to a 2020 report by AAA. That said, the cost of your insurance premium is determined by several factors, so it may be higher or lower than average. Here's what you should know about how much car insurance costs and what can impact your policy premiums.
Average Cost of Car Insurance
The cost of a policy that sets you back $1,202 per year breaks down to about $100 per month, though car insurers tend to offer discounts if you pay your policy premium in full instead of in monthly increments.
This average is based on national data, which takes into account everyone from teen drivers to experienced and accident-free drivers. Depending on where you live, how long you've been driving, how much you drive, your age and sex and several other factors, the premium you're charged may be very different.
Factors That Affect Car Insurance
There are several primary elements insurance companies look at to decide your premium when you apply for a car insurance quote.
State and Region
Car insurance is regulated at the state level, and rates can vary by state and even by ZIP code. In other words, the exact location of your residence can have a major impact on your monthly premiums.
For instance, the incidence of vandalism, theft and accidents is higher in urban areas than in rural areas. So you can generally expect to pay more if you live in a city versus someone who lives in a small town.
Tickets and other violations can spike your car insurance rate because they're a sign that you may be a risky driver.
Accidents, primarily when you're at fault, can also cause your premium rates to balloon. In some cases, you can see a rate increase after an accident even if you were not at fault for the accident but still filed a claim. That's especially the case if you've filed other claims in the past.
Vehicle Type and Use
The type of car you drive is a key consideration for insurers. For example, cars that are statistically more likely to be stolen may carry higher rates than others that are further down the list. And the more expensive the car, the more expensive the potential claims, which makes it more likely that you'll have a higher monthly premium. Insurers use the car's vehicle identification number (VIN) to assess its mileage, accident history and other factors to help determine your rate.
How you use the car is also important. You'll typically share how many miles you expect to drive each year and the primary usage. For example, if you have a long commute, you may be more likely to get into an accident than someone who primarily drives on the weekends for pleasure. Some insurance providers even ask you to install a GPS tracker on your car so your rates can be adjusted based on your driving habits.
Insurance carriers use a lot of data to determine risk profiles, including demographics such as age, gender and marital status. For example, single males under 25 are the most likely to get in an accident, and they can expect their insurance rates to reflect that elevated level of risk.
Type and Amount of Coverage
In most states, you must have at least a minimum level of liability insurance on your vehicle. Even where it's not required, you have to provide evidence that you're financially equipped to pay for damages if you cause an accident. If your car is financed, your lender may require you to carry a certain level of insurance above the legal minimum.
But beyond that requirement, the types of coverage you choose and how much will be reflected in your premiums. The main coverage types include:
- Liability: This protects you in an accident when you're at fault; it covers the cost of the damage to the other vehicle and the medical bills resulting from injury.
- Collision and comprehensive: Collision coverage provides protection if you're in an accident and not at fault. Comprehensive protection covers theft and damage that occurs in other ways, such as vandalism or natural disasters.
- Uninsured/underinsured motorist: If you get in an accident where the other party is at fault and they either don't have insurance or their liability protection is insufficient, this coverage kicks in to help your policy bridge the gap.
- Personal injury protection: This covers medical bills for both you and others in your vehicle at the time of an accident, regardless of who's at fault. This type of insurance is not available in all states.
Some insurers will also provide additional coverage types, such as rental car reimbursement and emergency roadside assistance.
In addition to the coverage amounts you choose, insurers will also consider your deductible. This is the amount you'll pay out of pocket before your coverage kicks in when you file a claim. A lower deductible means you're on the hook for less if something happens, but it will typically result in a higher monthly rate.
In states where it's allowed, auto insurers also may use what's called a credit-based insurance score to help determine your rate. That's because credit scores can help predict the likelihood that you'll miss a premium payment or file a claim.
Keep in mind, though, that insurers don't consider your credit history in California, Hawaii, Michigan or Massachusetts. Even in states where it is allowed, insurers typically can't use your score as the sole reason to raise your rate, deny you coverage or cancel or refuse to renew your policy.
While not as prominent in the decision, there are several other factors that an insurance company may consider when determining your rate, including:
- Housing situation
- Previous insurance coverage (specifically, whether there's been had a gap in coverage)
- Driving experience
- Discount eligibility
How to Lower Your Car Insurance Rate
Now that you understand what goes into the decision-making process for car insurance, here are some tips to help you qualify for a lower rate:
- Shop around. One of the best things you can do to score a low rate is to shop around and compare quotes from several insurers. This process could save you hundreds or even thousands of dollars, depending on where you live.
- Ask about discounts. Insurers offer discounts as an incentive to buy a policy. There are generally discounts available based on your driving habits, your demographics, the vehicle's safety technology and how you plan to use the vehicle.
- Bundle your policies. If you own more than one vehicle, own a home or are renting, getting all of your insurance policies from the same company can help you save money. Those savings could be as high as 30%.
- Improve your credit score. If your credit isn't in great shape, look for ways to improve it before you buy a policy. You can get your free credit report and credit score through Experian. Take a look for areas that need work, focusing on some of the more significant factors that go into your credit score, such as account balances.
- Raise your deductible. Increasing your deductible eliminates some of the risk for the insurance company, so you can generally expect a slightly lower rate. That said, consider raising your deductible only if you're confident you'll be able to pay it in the event of a claim without causing financial distress.
Review Car Insurance Rates Regularly
Car insurance rates are never set in stone, and the factors that determine yours can change over time. While you may get extra benefits for being loyal to your local grocery store, favorite airline or retailer, that's not always the case with car insurers.
As such, it may be a good idea to check in on your car insurance rate every year or two. Consider shopping around a bit to make sure you still have the lowest rate possible. If not, it may be worth switching to take advantage of lower costs elsewhere. You can browse auto insurance offers through Experian and potentially find a cheaper rate.