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Car insurance can be a major expense for drivers, even if their car is paid off and they don't drive much. And any accidents, moving violations or DUI charges in your driving record can make the situation worse. Fortunately, you can follow some common cost-cutting strategies to make a dent in the cost of your auto insurance.
Typical Cost of Car Insurance
The average annual U.S. car insurance premium in 2020 was $1,950, according to data from car insurance broker Gabi that excludes Alaska and Hawaii. On a monthly basis, that adds up to about $162.
It's an expense that most motorists must pay. Nearly every state requires a driver to at least carry liability insurance. This covers damage or injuries you cause to someone else if an accident is determined to be your fault.
Driving without car insurance can lead to fines, jail time and other penalties. "You can't afford not to have insurance," the Montana Department of Justice tells drivers in its state.
Keep in mind that if you're financing a car through a loan or lease, the lender might require comprehensive and collision coverage. That coverage—which can pay to repair or replace your car, regardless of fault—would be on top of any liability insurance mandated by the state where your car is registered.
Factors That Go Into Determining Car Insurance Premiums
Car insurance companies weigh a number of factors to figure out how much you'll pay for coverage. These include:
- Driving record: A solid driving record can keep your car insurance costs lower.
- Driving activity: Typically, you'll pay more for coverage if you drive a lot, since that means you're more likely to get into a crash.
- Location: If you live in a major city, for instance, you could wind up paying more for coverage because your car is more likely to be stolen, vandalized or involved in a crash. But if you live in a less populous area, you might enjoy reduced insurance costs.
- Age: Typically, older, more experienced drivers pay less than younger, less experienced drivers do (especially those under 25). Rates tend to climb again once a driver reaches retirement age, however.
- Gender: Statistically speaking, women are involved in fewer accidents than men, so they tend to pay smaller premiums.
- Type of car: A car with a good safety record, a low likelihood of being stolen and a history of lower-cost repairs, among other factors, normally can result in a lower car insurance premium.
- Credit: In many states, insurers can use a credit-based insurance score—which isn't the same as a traditional credit score—to help set your premiums.
What Can You Do to Better Afford Car Insurance?
If you're finding that it's a struggle to afford your car insurance premiums, you can take a number of steps to decrease costs. Among them:
- Shop around. When you compare premiums charged by several insurers, you might come across coverage that meets your needs yet doesn't drain your bank account. The Insurance Information Institute suggests obtaining car insurance quotes from at least three competing companies.
- Raise your deductible. The deductible is the amount of money that is subtracted from a claim payout. So, if your insurer approves your crash claim of $5,000 and your deductible is $500, you'd end up with a payout of $4,500. (Liability coverage doesn't come with a deductible.) Since a higher deductible saves the insurer on claim payouts, the company may reduce your premium in exchange for a higher deductible. According to the Insurance Information Institute, changing your comprehensive and collision deductible from $200 to $500 might lead to savings of 15% to 30%.
- Adjust your coverage. You can reduce your premium by eliminating some of your coverage. For instance, if you have comprehensive and collision coverage but your relatively old car is paid off and not worth much, you might consider dropping this coverage—as long as you could afford to repair or replace your car after an accident.
- Ask about discounts. Car insurers typically offer a variety of discounts. Examples include discounts for being a good student, going accident-free for three years, steering clear of traffic violations for three years and insuring your car and home with the same company.
- Switch vehicles. Part of your car insurance premium is tied to the kind of car you drive. To slash your premium, look at whether, for instance, it makes sense to trade in your sports car for one that costs less to insure—such as a minivan or SUV.
- Explore pay-per-mile insurance. If you don't drive a lot, you might benefit from pay-per-mile insurance, which has a cost that fluctuates from month to month depending on how little or how much you drive.
- Improve your credit. Major factors that go into a credit-based insurance score include your payment history and your outstanding debt. Insurers say they incorporate these scores into their rate-setting process because research shows a link between credit history and the likelihood that a policyholder will file a claim.
How to Get Financial Help With Car Insurance
So, you've tried some of those cost-cutting moves but you're still struggling. It could mean your credit card bills and other financial obligations, along with your car insurance premiums, are straining your budget. To get a handle on your finances, you might:
- Seek help from a certified credit counselor. A nonprofit credit counseling agency can help you create a budget and suggest ways to better manage your debt.
- Nail down extra work for additional income. To help alleviate financial issues, hunt for ways to bring in some extra income. This might involve freelance work, gig work or a part-time job in addition to your regular job.
- Pursue debt consolidation. You might be able to get your finances in order by applying for a debt consolidation loan that enables you to group several debts into one loan, potentially at an interest rate that's lower than what you're paying for your existing debts. You also might see whether you can qualify for a credit card offering an introductory 0% interest rate for balance transfers. These interest savings could make your monthly bills more affordable.