Did your auto insurance policy just renew and are you wondering why is my car insurance so high? In this article we will explore the factors that go into determining the cost of car insurance, other reasons your car insurance can be so high and ways you can lower your auto insurance.
Factors that determine the cost of car insurance:
1. Your driving record
Insurance companies want to know the complete history of your driving record. Including accidents and moving violations or DUIs. A DUI will affect your driving record for 3-7 years. So that speeding ticket didn’t just cost you $300 at your day in court, it’s costing you on your insurance policy as well.
2. Your driving patterns
How far and how often are you on the road? The farther you drive each day, the more likely you are to get into an accident. Thus the insurance company is more likely to have to pay out.
3. Your credit history
Your credit score affects the cost of your car insurance. In Michigan it costs on average a good driver with bad credit $5,500 more a year for an insurance policy. A credit-based insurance score is used to predict your likelihood of filing a claim in the next few years. Insurers can use this and other scoring models to help set rates in all states except California, Hawaii and Massachusetts, where the practice is banned.
4. Where you live
Many insurance premiums are often dictated by where you live. For instance, Michigan’s average premium is 64% higher than the national average. Louisiana, Florida, Connecticut and Rhode Island follow behind Michigan for the most expensive car insurance by state.
5. Your sex, marital status, and age
Insurance companies look at historical averages of accidents based on your demographic and factor that into your premium. Young, single men have more expensive policies than married middle aged women.
6. The type of car you drive
The more expensive the car, the more expensive the premium. Also insurance companies will want to know that the car you are driving is safe. That red sports car may get you a lot of looks but it’s going to cost you a pretty penny.
7. The policy you select
The plan you select affects the costs. There are many add ons to your insurance policy that add up quickly such as bodily injury liability, property damage liability, collision, comprehensive, glass coverage and gap insurance. Another factor is the deductible, which is what you pay out of pocket when you get into an accident.
Other Reasons Your Car Insurance Is So High
1. Your auto insurance policy has been cancelled in the past
If you’ve missed payments before and didn’t pay your premium and were dropped from your insurance, the insurer will raise the rate. It may even be difficult to find an insurer altogether if this was a pattern.
2. You have a teenager on your plan
If you have a teenager on your policy, they are considered a “youthful operator” and your premium will go up.
3 You’re not bundling
You’re not taking advantage of the discount your insurance company offers for bundling home, auto, and life insurance. There are significant savings offered when you bundle.
How to Lower Your Auto Insurance
1. Take a defensive driving course
One of the best ways to immediately lower your car insurance premium by up to 10% is to take a defensive driving course. The course usually 5 hours long and the discount applies for 5 years. You can also take the course again to knock points off your license which will also help lower the costs of your insurance by cleaning up your driving record. Just make sure that you aren’t paying more for the course then you would get in savings. But remember the savings will last over a 5 year span.
2. Shop around
The auto insurance market is a very competitive market, if your current insurance company has been raising your prices than it is time to shop around. In order to get your business, another company may offer a really attractive rate. Also, each company uses a different scoring system so you may find another company offers you a lower premium. To find out how to switch car insurance, click here.
3. Increase your deductible
Increasing your deductible from $500 to $1000 can save $500 on your premium. In the event of an accident, if the damages to your car were $2500, you would be responsible for paying $1000 and your insurance company would cover the other $1500. This is what a rainy day fund is for, car repairs and unexpected expenses. So if you increase your deductible by $500, make it a goal to add an additional $500 to your rainy day fund.
4. Improve your credit
There are many advantages to improving your credit, like better interest rates if you apply for a mortgage, or better APR with your credit cards. And even better auto insurance premiums. Poor credit has a higher rate with auto insurance. So try these tips for rebuilding your credit:
- Check your credit score
- Catch up on payments
- Pay on time moving forward
- Keep balances low
- Avoid closing accounts
- Ask for help from friends and family
- Open a secured credit card
- Apply for a credit builder loan
Improving your score a few points won’t knock money off of your premium. But if you are diligent and work at improving your credit, when your policy is up for renewal and they run your credit you can be in for some big savings.
5. Drive safe
Driving safe AND slow may sound obvious but it is all too often disregarded. It takes 3 years for a moving violation to fall off of your driving record. So stay the speed limit and never drink and drive. These offenses are extremely costly both financially and can cost someone their life.
When it comes to getting your car insurance rate lowered take everything into account. Work on all of the factors that are in your control so next time you’re up for renewal you’re not wondering why is my car insurance so high?