You finally can afford the car. Now, what about insurance? Why that could be a problem.
Medora Lee, USA TODAY
Updated 4 min read
If you think the cost of a car has gotten expensive, wait until you go to insure it.
Auto insurance rates are up nearly 15% in some states over the past year, while nationwide premiums have risen more than $240 on average to $2,014 a year, according to comparison site Bankrate. And the increases aren’t over. U.S. rates are expected to rise by an additional 8.4% in 2023, which would outpace current inflation at 4.9%, and represent the largest increase in six years, according to consumer research and finance site ValuePenguin.
The rising insurance costs come as consumers are struggling financially after nearly three years of high inflation and surging car prices. Eleven percent of drivers now pay more for car insurance than car payments, and 7% spend more on insurance than household utilities, a report from insurance platform Autoinsurance.com shows.
“Many consumers have little to spare in their budgets to pay more for household goods and auto insurance,” said Aliza Vigderman, content director at AutoInsurance.com. She said the impact of higher auto insurance costs spans upper- and lower-income households. And for people living on fixed incomes, "it may soon be impossible to pay for car insurance.”
What you pay in auto insurance varies from person to person, depending on location, type of car and a person’s age and driving record.
But there are a few things that factor into everyone’s price increases. These include:
Economic inflation of the kind everyone’s been talking about the past few years, including rising costs of groceries, smartphones and tires. That inflation also includes rising costs for labor, auto parts, medical care if someone is injured, and new and used car prices, all of which have contributed to increased insurance prices.
Social inflation, like people's propensity to file or litigate claims, has been climbing, according to the Insurance Information Institute (III).
Risky driving behavior that pushed traffic deaths to a 16-year high in 2020, with speeding-related crashes jumping 11% and alcohol-related crashes climbing 9% from 2019 despite fewer drivers on the road, the National Highway Traffic Safety Administration said. Estimates show 9,560 people died in car accidents during the first three months of 2022, up 7% from the same period in 2021 and the deadliest first quarter since 2002, it said.
The likeliest outcome is “auto insurance premium rates will have to rise significantly in years to come,” the Insurance Information Institute said in a report. “Even if general inflation levels off, labor and replacement-parts costs will continue to rise, albeit more slowly.”
What can consumers do to try to lower their auto insurance costs?
Some options to consider for lowering your car insurance bill are:
Shop around. Research and analytics firm JD Power says the high rates have forced more people than ever to shop for auto insurance. In March, the 30-day average shopping rate reached 13.1%, the highest since JD Power started tracking this in September 2020, after February saw a 14.5% increase in auto insurance costs.
Bundling your homeowners, car and whatever insurance policies you may have with one insurer. Insurers often offer discounts if you have more than one policy with them.
Ask for discounts. “Every insurance company offers some sort of discount whether it’s for autopay, kids with good grades, or a driver’s education class,” Vigderman said.
Telematics, which is software that monitors driving style and assigns rates based on safety and mileage metrics. “If you drive fewer miles and safely, you can save money,” Vigderman said. Often this requires you to add a device to your car that relays information to the insurance company, which some people object to as tracking software “but some could argue your phone already does that.”
JD Power estimates telematics are now offered to 22% of insurance shoppers and purchased 18% of the time, up from a 16% offer rate and 12% purchase rate in 2020, showing it’s becoming more mainstream.
With many people working from home, Vigderman says this option could work for more people. “People have shorter commutes or no commutes, so they can pay a small daily rate plus a per mileage rate and save a lot of money,” she said. "It also incentivizes safe driving.”
One thing people should NOT do is opt for the cheapest insurance, which is "the state minimum liability only policy that only covers people and property outside your car so you would have to pay out of pocket for your medical costs or damage to your car. At the very least, get full coverage.”
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
