I recently received the annual renewal notice for my auto insurance policy and I looked at it more carefully than ever. According to data from the Bureau of Labor Statistics, auto insurance premiums have jumped recently, increasing 20.6% over the past year.
This is a huge increase and is causing many Americans to pay much more for auto insurance than in the past. But how much exactly? Here’s what the average driver pays, why costs are increasing, and what you can do to lower your insurance premiums.
The average cost of car insurance and why it’s so high
Americans pay an average of $3,017 a year for their auto insurance, or $251 a month. That’s a significant amount of money going to insurance, and it equates to just over 4% of the average American’s monthly expenses.
Inflation is to blame for big price increases over the past few years, but car insurance prices have risen six times faster than the rate of inflation. So what’s going on with car insurance rates? Here are a few factors causing price spikes:
- Repair costs have increased: A big factor affecting car insurance premiums is how much the car costs to repair. Over the past few years, parts shortages have made it more expensive to repair vehicles, which in part has led to a 20% increase in repair costs. There is also a significant gap between the amount of mechanics entering the workforce each year compared to those leaving, according to the National Automobile Dealers Association.
- Car prices soared: The average price of a new car transaction has jumped 25% over the past four years to $47,401. The more expensive a car is, the more it costs to repair or replace it, so insurance companies have raised some rates in response.
- Some insurance companies compensate losses: Some insurance companies have lost a lot of money insuring homes and cars in states that have been hit hard by extreme weather events. Some companies have even stopped issuing new policies in some states, driving up costs. Those that remain may raise prices to offset costs.
Auto insurance premiums vary by state
What you pay for your insurance depends on a variety of factors, including your age, credit score and what kind of vehicle you drive. But where you live matters too.
For example, Hawaii has the cheapest car insurance premiums, on average, compared to the rest of the country. The average annual cost of car insurance is just $1,619 – about 46% lower than the national average. Two main reasons for cheaper state insurance are that state laws do not allow insurance companies to consider a driver’s age or credit score.
Read more: check out our picks for the best car insurance companies
However, some countries are much more expensive than the national average. Some states have stricter laws about what types of coverage are required, which can result in higher costs. The most expensive states for car insurance and their average premiums are:
- Michigan: $4,894
- Louisiana: $4,312
- Florida: $3,997
- New York: $3,909
- New Jersey: $3,720
How to lower your car insurance costs
The good news is that you don’t have to move to another state to get a better insurance rate. However, I would be willing to make that sacrifice to live in Hawaii.
Here are a few things you can change to improve your premiums:
- Combine your insurance: Bundling your home (or renters) and auto insurance together can lower your insurance costs by up to 7% with some companies. If you have policies with extensive coverage, your savings are likely to be maximized by bundling.
- Shop for offers: Switching car insurance companies can seem like a huge hassle, but it can be worth it. Studies show that 60% of comparison drivers end up saving on their car insurance premiums. You can compare policies from the best car insurance companies online, making saving easier than ever.
- Take advantage of discounts: If you’re happy with your insurance company, see what discounts they offer that you’re not taking advantage of. For example, taking a defensive driving course can help you save up to 10% on your insurance premiums. Additionally, some companies offer usage-based insurance, which uses an app to rate your driving habits and then charges you based on how good a driver you are.
- Improve your credit score: Since many insurance companies use your credit score to help determine rates, it’s a good idea to try to improve it. Paying your bills on time is one of the most important things you can do to help your bottom line. Paying off your credit card balances is also crucial, and this can sometimes boost your credit score quickly.
Auto insurance premiums aren’t likely to go down anytime soon, so taking steps to improve your premiums can go a long way toward saving you money at your next policy renewal. I’m looking for a few ways to save money, so maybe you’ll save me a spot on the defensive driving course.
Our Best Car Insurance Companies for 2024
Ready to shop for auto insurance? Whether you’re focused on price, claims handling or customer service, we’ve researched insurers across the country to provide our best-in-class picks for auto insurance coverage. Read our free expert review today to get started.
