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Why is car insurance so expensive?

Car insurance rates are personalized for every driver. But depending on factors like your location and driving record, car insurance premiums can be extremely expensive. There are many reasons why car insurance rates can be costly, but the good news is that car insurance rates often decrease with age, assuming you avoid accidents and claims.

In this guide, we’ll discuss how car insurance companies determine rates and explain why is car insurance so expensive in 2023. Understanding how car insurance premiums work and how they’re calculated can also help you save money on your policy.

Written by Elizabeth Rivelli

Reviewed by Alyssa DiCrasto

Last updated: July, 2023

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Why is car insurance so expensive?

If you’re wondering, “Why is car insurance so expensive,” you’re not the only one. Multiple studies have shown that car insurance rates have increased in recent years.

However, that’s not to say that car insurance is expensive for everyone. When you apply for an auto insurance policy, the insurance company looks at a variety of different factors to calculate your customized premium. These factors include both external factors and personal factors.

External factors

Auto insurance rates have been increasing across the board for several reasons that affect most people. These include:

  • Inflation
  • More frequent natural disasters
  • Higher instances of insurance claims

When one or more of these things happen, it makes it more expensive for insurance providers to insure you. For example, when there is a natural disaster, there can be a huge spike in the amount of people making an insurance claim at the same time. When there are more frequent natural disasters, it becomes very expensive for insurance companies that are usually better equipped to handle a lower percentage of claims at one time.

To combat external factors like inflation and natural disasters, insurance companies will try to raise their rates across the board. Insurance providers do this by updating their rating plan, which must be approved by your state. Once the rating plan is approved, the company can raise their rates.

Personal factors

Other factors that impact your car insurance rate include:

  • Where you live – both your state and your zip code
  • Your age – younger drivers tend to pay more
  • Your credit score – lower credit scores can often mean higher rates, if your state permits credit score as a rating factor
  • Driving record – clean driving records typically pay less
  • Vehicle type – newer vehicles can be more expensive to insure
  • Coverage limits and deductibles – full coverage policies are more expensive than state minimum policies, and lower deductibles often lead to higher premiums

While some of these factors are out of your control, like inflation, you can control other factors. For instance, drivers with excellent credit tend to pay lower rates for car insurance. If your credit score is low, raising your score could help you lock in a more affordable premium.

Does car insurance ever get cheaper?

If you’re paying a high car insurance rate right now, it probably won’t be this expensive forever.

For most drivers, car insurance premiums start to decrease with age. Because young drivers often pay the highest rates, you can expect your premium to drop as you get older. In addition, changes in your driving record can positively impact your rate.

For example, if you have several speeding tickets or accidents on your record, those violations will eventually get removed, usually after a few years. Once those violations are dropped, your car insurance premium should get less expensive.

However, it’s important to know that your car insurance premium is not guaranteed to get cheaper over time. While rates typically decrease with age, there are other factors at play that could prevent your rate from dropping (like a problematic driving record).

 

Why is car insurance so expensive under 25?

Young drivers under the age of 25 often pay the highest car insurance rates. This is because newly licensed drivers lack experience behind the wheel. Statistically, drivers between the ages of 16–19 have higher crash rates than any other age group. Young drivers are also more likely to make mistakes that can lead to serious accidents.

Due to the increased risk of accidents and other car insurance claims, insurance companies generally charge young adults the most expensive rates. However, data shows that car insurance premiums tend to start decreasing around age 25. This is assuming drivers maintain a clean driving record and have no prior claims.

Are red cars more expensive to insure?

You might have heard that the color of your vehicle impacts the cost of your car insurance. Specifically, it’s believed that red cars are more expensive to insure. However, there’s no truth to this—it’s only a myth.

There are lots of factors that affect your car insurance premium, but the color of your car is not one of them. Whether you own a red car, white car, or black car, your car insurance premium will be the same.

However, the make, model, and year of your vehicle can impact the cost of your car insurance policy. For instance, if you own a 2023 Honda Civic, the cost of your car insurance will probably be higher than the cost of insurance for a 2015 Honda Civic.

How can you lower your car insurance?

If you think you’re overpaying for auto insurance, there are ways to get a cheaper car insurance premium. Here are a few strategies that could help you save money:

  • Look for discounts: Most car insurance companies offer discounts. You can often find savings for good students, claim-free drivers, taking a defensive driving course, insuring two or more vehicles, and having a vehicle with safety features, like an anti-theft device or anti-lock brakes.

  • Raise your deductibles: If you have policies that require a deductible, like collision and comprehensive insurance, choosing higher deductibles will lower your premium. However, you should only raise your deductibles if you can afford the higher cost out-of-pocket should you ever need to make a claim.

  • Pay your premium in full: Most car insurance providers will lower your rate if you pay your annual premium upfront and in full. You can also find discounts for enrolling in automatic payments.

  • Bundle your policies: Policy bundling is a great way to get more affordable insurance. When you purchase two policies from the same insurer, like auto and home insurance, you can often save money on the combined premium.

  • Shop around: Before you purchase a car insurance policy, shop around and get quotes from a few different insurance carriers. That way, you can easily see which provider can offer you the best deal for the type and amount of coverage you want.

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