One of the most frequently asked questions that Investopedia gets from new and used car buyers is, “How much will it cost to insure my new ride?” Unfortunately, there is no simple answer to this question.
Key Takeaways
- The cost of car insurance premiums varies from state to state and insurance company to insurance company, but three standard factors are always considered: you, your car, and what type of insurance you want to buy.
- Insurers look at your driving record, your age, your gender, and an insurance score, similar to a credit score, to help determine the cost of your car insurance.
- The year, make, and model of your car factor into the cost of repairing it, which, along with where you keep it, figure into the price of your premium.
- There are five primary kinds of coverage—liability, collision, comprehensive, personal injury protection, and uninsured motorist—but liability is the only must-have.
Looking at Average Costs for Guidance
Some consumer advocates point to the averages for guidance. According to a National Association of Insurance Commissioners report, the average cost of a “complete” insurance policy (which provides liability, comprehensive, and collision coverage—more on all of those in a bit) was $1,176 in 2020.
Those figures give you a rough idea of how much you could pay for an insurance policy. But they are averages—in fact, averages of averages. That means they are no better than guesses. Costs vary from state to state, county to county, insurance provider to insurance provider. So you must choose a provider wisely.
Only the insurance company you select—whether Allstate, Progressive, USAA, Farmer’s, GEICO, or another—can answer the “how much?” question with accuracy. Each will have its list of factors and formulas for assessing risk and, thus, determining your annual premium.
Investopedia / Ellen Lindner
However, there are a few standard factors you can expect to take into consideration when determining how much you will pay, regardless of the carrier. We have broken them down into three categories: you, your car, and the types of coverage you want to purchase. Here’s how each one affects the price equation.
Standard Factor #1: You
There are five different “components,” focusing on your risk, that companies look at when they’re deciding whether to provide you with insurance for your vehicle.
Your Driving Record
Michael Barry, chief communications officer of the Insurance Information Institute, says insurance companies typically take the past few years of driving history into consideration when determining your rates.
“The insurer is looking to assess the likelihood that you’re going to be filing a claim, and somebody with a significant number of moving violations or more serious instances such as driving under the influence will impact the cost of insurance,” Barry explains.
That means if you’ve got a clean driving record, you’re not a risk. If you’re one moving violation from having your license revoked, then you are a significant risk—and your premium will be higher.
Your Age
Statistics show that older, more experienced drivers are safer than younger drivers. Younger, inexperienced drivers get into more crashes than experienced drivers, according to the Insurance Institute for Highway Safety.
“Eighteen- to 25-year-olds are more likely to file claims than almost any other age group,” Barry says. As a result, they pay more for coverage.
Accident rates decline with age before ticking up again as drivers become older. With the physical changes that come with aging—such as impaired eyesight, hearing, and cognitive ability—some senior drivers tend to be more cautious and avoid driving altogether.
Your Gender
According to the Insurance Institute for Highway Safety, women drive fewer miles than men, engage in less risky driving practices (such as not wearing a seatbelt), and are less likely to speed or drive while impaired. On a mile-to-mile basis, women drivers across all age groups have a lower fatal accident rate compared with men. Because men as a group cause more accidents, they typically pay higher insurance premiums. These binary gender classifications might inadvertently penalize nonbinary and transgender drivers.
Your Credit Score
Insurance scores and credit scores differ, but they are related. Both are calculated from the information in a credit rating report, such as outstanding debt, bankruptcies, length of credit history, collections, new applications for credit, number of credit accounts in use, and timeliness of debt repayment. As such, your credit score is considered a metric of responsibility. Insurance providers use it to assess how you will treat your vehicle and the likelihood that you will file a claim. They call it an insurance score.
Statistically speaking, people with a low insurance score are more likely to file a claim.
Standard Factor #2: Your Car
Your Car’s Year, Make, and Model
Insurance carriers don’t necessarily weigh the cost of a car but instead how much it costs to repair it. Say a Lamborghini and Kia collide. The Lambo will need expensive, hand-built parts from Italy to make it whole again. Kia replacement parts can be purchased online from almost every aftermarket parts store. Thus, the raging bull owner will pay more for insurance because the sports car costs more to repair.
Where Your Car “Lives”
Why do insurers look at location?
“If you’re in a densely populated area, the likelihood of getting into an accident goes up,” Barry says, as does your risk assessment. “That’s why the rates in states like New York and New Jersey are high.”
Vandalism and car theft are also higher in densely populated areas. Meanwhile, areas prone to natural disasters also mean higher risk assessments.
During hurricane season, Barry says, “I immediately think of Florida, Louisiana, Texas. Claims will come in for flooded cars, those hit by fallen tree limbs, incidents that generate an enormous number of auto insurance claims.”
Hence, the rates in those states are typically higher than in areas with few natural disasters.
Standard Factor #3: The Type of Coverage You Want
The five primary kinds of coverage—liability, collision, comprehensive, personal injury protection, and uninsured motorist—that make up your policy will also help determine your monthly premium price. So, it’s best to know what these are and how they work.
Each state’s “minimum required coverage” is typically the least expensive insurance policy you can buy. Liability is the only must-have. It is mandatory in most states and protects you from the costs incurred if you injure someone or damage their property in a crash.
Collision, or coverage that reimburses the insured for damage sustained to their personal automobile, due to the fault of the insured driver, and comprehensive, which covers damage to your car from causes other than a collision, are popular options though they aren’t typically required by state laws.
Collision and comprehensive coverage together are often referred to as full or complete coverage. These policies cover you if your car is damaged, whether in a car accident or some other way (think falling trees, and guardrails, for example). Skipping out on comprehensive and collision coverage can lower your monthly premiums, but it can lead to higher costs down the road if you’re stuck paying for major repairs.
The others are less popular but no less important.
- Personal injury protection pays all medical bills for the driver and passengers if you’re in an accident.
- Uninsured motorist insurance pays when the other party in a collision doesn’t have insurance, or not enough to cover the cost of the resulting medical or repair bills.
The Bottom Line
Insurance companies take into consideration the components of these three standard factors and apply them to their formulas to come up with a price for your automobile insurance. Every insurer is different, so it pays to shop around and get quotes from various companies. And don’t forget to ask about discounts—if you’re over the age of 55, for instance—which can lower the price of your annual premium.