If you want to understand US Car Insurance Rates, this white paper will explore the facts that matter most to the consumer. How and why car insurance rates are determined. Where in the US would be the most optimal place to live and where is car insurance the most expensive. Most importantly, how you as a driver can lower your own personal car insurance rates.
How are Car Insurance Rates Determined?
First and foremost, there is no one formula for every state in the US or for every Insurance company that calculates car insurance rates. There are a multitude of factors that contribute to auto insurance rates. Many of these factors can vary from state to state, whereas others will be universal across many states.
It is these factors that are assumed into a mass of statistical data by an insurance company and analyzed over decades to set future rates. With a complete understanding of risk profiles, insurance companies are better able to charge those “drivers” that are at more risk of an accident, a higher premium and those at lower risks a lower premium.
These factors can vary between states, although many states may share similar ones. A major aspect that may affect your insurance rate is your state’s natural weather patterns. Are you subject to natural disasters or large storms that can wreak havoc and cause damage on a consistent basis? States that encounter the risk of large tropical storms annually, heavy winter storms that cause significantly more auto accidents and even tornados may have an impact reflected in their rates. Large metropolitan centers with high crime rates and large traffic congestion issues may also contribute to your state’s average insurance rate.
The standard variables in the calculation of insurance rates are the ones that most drivers understand. These deal with age, gender, location, vehicle type, marital status, driving record, and more. These standard variables, when compiled and analyzed against accidents and insurance claims enable insurance companies to create risk profiles for their pricing.
If you are looking for the current rates in your area for car insurance there are a number of options to consider. You can look at the insurance companies in your area by calling each one for a competitive rate. Then compare that to the average rate listed in your state, as provided below in the average insurance rates per state in 2015 by Insure.com. However, this may not take into effect regional variance within your state. Your best option may be to contact an insurance broker that submits your personal variables to multiple companies at once for an instant comparison. There are even many online websites that offer this service. To get the best current rate in your area, it would be wise to conduct research quotes across many providers.
*Dollar figures shown are an average for the 20 best-selling 2015 models nationwide based on 2014 calendar year sales data.
Insurance for cars against accidents have been around almost as long as vehicles themselves. In the beginning vehicle insurance was only needed after you were involved in an accident, but it soon became apparent that victims of car accidents were not being properly compensated by the guilty party when they were unable to pay. Compulsory liability insurance for automobiles is required in every US state except New Hampshire. Historical rates for insurance can be found the Insurance Information Institute.
Technically car insurance companies are constantly forecasting or changing their rates based on the information that becomes available. If auto accidents in a particular state rise dramatically, major natural disasters increase claims dramatically or even legislation that impact the cost to insurers, these all will be reflected in premiums.
How Age and Gender Factor In?
Probably the two most important factors that determine premium pricing for auto insurance is that of age and gender. This is because these two statistics when correlated with risk factors for insurance prove that certain conditions provide a higher risk of claim against the company.
Statistics show, over the long period that woman are less likely to be involved in risky driving behaviors such as drinking and driving, reckless or careless driving and are therefore also less likely to get into auto accidents. Women also tend to purchase cars that are less expensive to insure and drive fewer miles on average than men do. When all these are considered in tandem, women pay less in insurance premiums throughout their lifetimes than men. These statistics are supported by the Insurance Institute for Highway Safety (IIHS).
Males were more likely to die in fatal accidents, be involved in fatal accidents involving excessive speed, less likely to be wearing a seat belt and much more apt to be involved in drinking under the influence while driving. These combined factors cannot be ignored and is the main reason why male drivers have higher insurance rates. However, if your personal driving record reflects any of these behaviors, it will be reflected in your rates, male or female.
Insurance Price Gap by Age and Gender
Just as gender plays a major role in price determination, so too does a person’s age. If you are under 25 or over the age of 70, expect your car insurance premiums be higher than average, especially for males. Statistics from the IIHS support this trend by showing that teenage drivers actually drive a lot fewer miles then adults yet account for three times the rate of accident-related deaths per mile than drivers over the age of 20. Although this age group is less likely to drink and drive they are at higher risk of crashing than adults that also drive under the influence.
Average Annual Insurance cost by Age
For adults older than 70, it is more due to physical limitations as you age, such as impaired vision, poorer cognitive functioning, higher usage of prescription medications and lower physical functioning due to aging maladies such as arthritis.
In both cases age and gender can play significant roles in deciding your car insurance premium. Young males pay on average 12% more than females even with no accidents or moving violations with a ‘clean’ record for the prior three years. When considering purchasing a vehicle be sure to include the added cost of insurance if you are a male driver.
What are the Other Factors?
There are a large number of other factors that play a role in determining rates for car insurance. These include your marital status, as married couples get in fewer car accidents than do single people. The decrease for marriage also depends on your personal driving records.
Where you live can also determine insurance premiums as rural areas tend to have lower rates then high volume of traffic metropolitan areas. This location based calculation also takes into account the crime statistics of where you live, especially in relation to auto thefts.
Surprisingly there is a statistical correlation between high credit scores and good drivers. Therefore many companies calculate in credit scores into their data calculations, meaning that higher credit scores mean lower insurance premiums.
Your profession may factor into the cost of your insurance, especially if you are in a driving profession as opposed to one that sees very little commuting. Sales people, drivers, journalists and other such professions can expect a higher rate, while airline pilots, police, nuns, insurance underwriters and paramedics usually receive lower rates. The latter receive a discounted rate because they are typically more cautious drivers.
The vehicle you drive can also impact your rate significantly especially its safety rating, size and age of the car. Fast sports cars for young drivers would be a very high insurance premium, whereas a minivan for a married couple would be considerably lower.
As you can see, car insurance rates are calculated using a wide variety of data from multiple sources and can change from year to year. These changes may be within a driver’s control, but many are not.
Car Insurance Rates around America
Car insurance rates around America are significantly different as you can see by the table above listing rates from every state. These rates are averages based on every driver in the state that is insured and may not reflect your current rate in that state. Yet on a whole it is reflective of certain socio-economic, weather, and traffic patterns that are visible throughout the US.
With Michigan being the most expensive auto insurance state and Maine being the least expensive, how do you know why each state is more or less expensive? Although it would seem clear cut that certain states should be very expensive, such as New York with New York City and its high congestion and traffic, it is in fact number 42 in the 2015 ranking edition. In this section we will discuss some of the reasons behind why certain states are expensive or inexpensive.
Most Expensive Insurance States
Although there are states with higher than average expected insurance rates in the top 10 states, two of the top three really stand out as question marks. Michigan and Montana as number 1 and 2 highest insurance rates in the country seem unlikely.
Michigan, a winter state with the Detroit metropolitan area, is definitely a candidate for higher than average insurance rates, but why is it the number one in the US? The answer is much different than you may think. It has nothing to do with the blight of Detroit or congestion, traffic accidents or adverse weather anomalies. In fact the state of Michigan currently has the highest insurance rates because their legislated car insurance policy of “no fault car insurance” is different than many other states that have similar policies.
In Michigan, the personal injury protection portion of no fault insurance that covers medical bills for the driver and their household also covers anyone in the vehicle without PIP insurance. Yet more importantly it is not limited to a certain amount like in most other jurisdictions. Insurers pay up to $530,000 of medical bills and the rest is paid by a Catastrophic Claim Association. This association is paid a $186 per vehicle fee for every car in the state on top of the cost listed in the table at Insure.com, making it even more expensive than its listed $2476 per year insurance cost. At 30% more expensive than the next state of Montana, it is not surprising that many drivers in Michigan also skirt the insurance laws. So Michigan was essentially legislated into becoming the most expensive insurance state by covering all medical bills due to auto accidents.
In Montana, the same can be said, that its state legislature is driving insurance prices higher. Although it is a more rural state than many other states its legislature has been very slow to institute laws protecting drivers as in other states and so insurers are hesitant to enter the market. This is true of inattentive driving laws like cell phone use and anti-texting laws that have not been passed in the state as well as the long standing secondary seat belt law.
Police officers in Montana are not allowed to pull over motorists for not wearing their seat belts as in most other states. It is considered a “secondary” seat belt law, where law enforcement officers must have a primary reason for stopping a vehicle other than a seat belt infraction before they can check for seat belt usage. The fact that according to IIHS, Montana also has one of the highest car fatality rates in the country it is clear why insurance companies do not want to enter the market. This compounded with the other factors in the state keep insurance rates high.
The next three on the list Washington, DC, Louisiana and Florida all seem likely candidates for higher insurance rates naturally. Washington rates are high because of traffic congestion and the fact that residents experience more car accidents per capita than most other places in the US. Louisiana experiences tropical storms like Florida, but is also known for very poor road maintenance conditions and a highly litigious populace. In the case of Florida they have high personal injury protection policies similar to Michigan, large out of state drivers and tropical storms.
The Least Expensive Insurance States
Two of the bottom lowest car insurance rate states include Idaho and Maine, sparsely populated and rural states that do not have massive metropolitan areas that other states contend with. In both Idaho and Maine, they also have a much higher percentage of drivers that have car insurance as compared to other states with only 7% and 5% respectively of drivers being uninsured.
On the other hand, the second cheapest state for car insurance is that of Ohio, a state that has several large cities. However, with the highest number of insurance companies operating in the state of any other state in the union, competition is fierce. This stiff competition keeps auto insurance rates low especially with over 600 auto insurance companies operating in the state.
Surprisingly, although New York City is ranked as the second most expensive car insurance city in the US, the state as a whole is only ranked as 42nd. So if you live in a big city, you may pay more in insurance but not always. Chicago residents pay less than the national average. Other lower than national average car insurance rate states as listed above follow the pattern of more rural, less densely populated states.
Current State Insurance Legislation
If you are looking to find out which states require the different types of insurance coverage the table below provides a quick and easy reference. The types of insurance required include Bodily Injury (BI), Physical Damage liability (PD liab), No Fault Personal Injury Protection (PIP), Property Protection (PPI), Uninsured Motorist (UM) and Underinsured Motorist (UIM). The minimum liability limits refer to the following: the first two numbers refer to bodily injury limits the first for one person, the second for all persons involved in an auto accident and the last number refers to a property damage limit. It is in thousands, for example, 25 equals $25,000.
|State||Insurance Required||Minimum Liability Limits|
|Alabama||BI & PD Liab||25/50/25|
|Alaska||BI & PD Liab||50/100/25|
|Arizona||BI & PD Liab||15/30/10|
|Arkansas||BI & PD Liab, PIP||25/50/25|
|California||BI & PD Liab||15/30/51|
|Colorado||BI & PD Liab||25/50/15|
|Connecticut||BI & PD Liab, UM, UIM||20/40/10|
|Delaware||BI & PD Liab, PIP||15/30/10|
|District of Columbia||BI & PD Liab, UM||25/50/10|
|Florida||PD Liab, PIP||10/20/102|
|Georgia||BI & PD Liab||25/50/25|
|Hawaii||BI & PD Liab, PIP||20/40/10|
|Idaho||BI & PD Liab||25/50/15|
|Illinois||BI & PD Liab, UM, UIM||20/40/15|
|Indiana||BI & PD Liab, UM, UIM||25/50/10|
|Iowa||BI & PD Liab||20/40/15|
|Kansas||BI & PD Liab, PIP, UM, UIM||25/50/10|
|Kentucky||BI & PD Liab, PIP||25/50/10|
|Louisiana||BI & PD Liab||15/30/25|
|Maine||BI & PD Liab, UM, UIM||50/100/253|
|Maryland||BI & PD Liab, PIP4, UM, UIM||30/60/15|
|Massachusetts||BI & PD Liab, PIP, UM||20/40/5|
|Michigan||BI & PD Liab, PIP, PPI||20/40/10|
|Minnesota||BI & PD Liab, PIP, UM,UIM||30/60/10|
|Mississippi||BI & PD Liab||25/50/25|
|Missouri||BI & PD Liab, UM||25/50/10|
|Montana||BI & PD Liab||25/50/10|
|Nebraska||BI & PD Liab||25/50/25|
|Nevada||BI & PD Liab||15/30/10|
|New Hampshire||FR only7, UM||25/50/253|
|New Jersey||BI & PD Liab, PIP, UM, UIM||15/30/55|
|New Mexico||BI & PD Liab||25/50/10|
|New York||BI & PD Liab, PIP, UM||25/50/106|
|North Carolina||BI & PD Liab, UM, UIM||30/60/25|
|North Dakota||BI & PD Liab, PIP, UM, UIM||25/50/25|
|Ohio||BI & PD Liab||12.5/25/7.5|
|Oklahoma||BI & PD Liab||25/50/25|
|Oregon||BI & PD Liab, PIP, UM, UIM||25/50/20|
|Pennsylvania||BI & PD Liab, PIP||15/30/5|
|Rhode Island||BI & PD Liab, UM8||25/50/257|
|South Carolina||BI & PD Liab, UM||25/50/25|
|South Dakota||BI & PD Liab, UM||25/50/25|
|Tennessee||BI & PD Liab||25/50/152|
|Texas||BI & PD Liab||30/60/25**|
|Utah||BI & PD Liab, PIP||25/65/152|
|Vermont||BI & PD Liab, UM, UIM||25/50/10|
|Virginia||BI & PD Liab, UM, UIM||25/50/20|
|Washington||BI & PD Liab||25/50/10|
|West Virginia||BI & PD Liab, UM||20/40/10|
|Wisconsin||BI & PD Liab, UM||25/50/10|
|Wyoming||BI & PD Liab||25/50/20|
Low-cost policy limits for low-income drivers in the California Automobile Assigned Risk Plan are 10/20/3.2.
Instead of policy limits, policyholders can satisfy the requirement with a combined single limit policy.3.
In addition, policyholders must also carry at least $1,000 for medical payments.4.
May be waived for the policyholder but is compulsory for passengers.5.
Basic policy (optional) limits are 10/10/5. Uninsured and underinsured motorist coverage not available under the basic policy, but uninsured and underinsured motorist coverage are required under the standard policy.6.
In addition, policyholders must have 50/100 for wrongful death coverage.7.
Financial responsibility only; insurance not compulsory.8.
Policyholder can decline to purchase uninsured coverage if he or she chooses to buy only the minimum limits of bodily injury and property damage liability coverage.
Source: Property Casualty Insurers Association of America.
Car insurance rates around America can vary greatly with most differences being attributable to the state’s individual legislation regarding auto insurance and the prevalence of high claims percentages, high volumes of traffic or destructive weather patterns.
How to Lower your Car Insurance Rate
If you are looking to lower your car insurance, there are multiple ways you can consider doing so. However, not all of the variables in the calculation are within your control directly. These outside variables are often not ones that many drivers would be willing to change because of the massive lifestyle changes it would require.
Choose the Right Vehicle
Choosing a vehicle that has an optimal safety rating and is the best for your personal situation can often have drastic effects on pricing for insurance. If you live in a depressed economic area, yet purchase a high end vehicle that is the target of auto thefts, your insurance will reflect that risk. Instead choose a vehicle that will ‘fit in’ within your neighborhood and has a recognized great safety rating.
As a male you may want to consider choosing a vehicle that is sensible and safe over sporty and fast. With insurance premiums already high for young males, purchasing a fast sports car will drive the cost up considerably. Choosing one of the IIHS’s Top Safety Picks would be a good place to start and keep your insurance premium lower.
Other vehicle choices that can lower your auto insurance include owning a vehicle that has anti-lock brakes, passive restraints such as air bags, seat belts as well as anti-theft devices such an alarm system. Some insurers also offer discounts for green or environmentally friendly cars such as an electric vehicle or an electric hybrid.
No matter what your personal situation is, expensive high end cars will always cost more in insurance premiums, especially if you opt for collision insurance. The price difference between individuals can vary based on other factors.
Lower Your Insurance Coverage
Opting out of certain types of car insurance coverages or raising your deductibles will have a lowering effect on your premiums. Many standard deductibles are $500, meaning if you make a claim for a broken windshield or minor accidents you will pay the $500 deductible but the insurer will pay the rest of the bill. By raising this deductible to $1000 or $1500, these minor accidents usually do not go through insurance, keeping you claim free. Since you are taking the risk of these events, it shows in your monthly insurance rate.
Lowering your coverage within the legal limits within your state is another way to lower your insurance premium. However, when deciding on increasing deductibles and lowering coverage, remember you are assuming more financial risk if you should suffer a catastrophic event with your vehicle. Make a choice that is smart for your situation.
Maintain a Clean Driving Record
One of the best ways for new drivers to start lowering their premiums is to prove to insurers that they are not the average young driver. This requires 2-5 years of a clean driving record with no moving violations, no claims for minor accidents, no traffic tickets and no point deductions. Proving you drive in a low mileage range will help as well. If you prove this through a clean driving record you should start to see your rates decrease, yet this depends on your insurer.
Many states and insurers reward young or new drivers that pay for accredited driver education. State Farm provides a great website for new and teen drivers to find out what the requirements are for their state. It lists the type of licensing requirements and education components. Yet, even if your state does not enforce education prior to licensing, many insurers will still give discounts to young drivers that have gone through defensive driving courses. Although it usually is a small discount, it may have added features like a lower wait time for the clean driving record discount.
Other Ways to Lower your Rate
There are other options for drivers to lower their insurance premiums, each of which is suited to an individual’s lifestyle.
For drivers still in school, some insurers offer discounts for high grade point averages, while you are in school. For adults this is similar to discounts offered for higher credit scores. If you can improve your grades or credit score you may be able to affect a decrease in rates.
Not an option for many, but moving states, to a more rural location or to a better neighborhood can all make it possible to revise your current car insurance rates. By moving to a state in the lower end of the cost spectrum, you can significantly lower your rates. Moving to a rural location or better neighborhood will have less of an impact on rates.
Insurance Company Quote Comparisons
When you consider getting quote comparisons there are a couple ways to help get the lowest rate. First, be willing to get your quote and insurance online, avoiding the personal appointment. Buying your policy online cuts out the human element and makes it more efficient for insurers.
When looking into a new insurer, be sure to shop around at least 7 days prior to your old policy’s expiration, consider bundling all your vehicles, life and home insurance into one provider as well as paying for the policy up front instead of monthly. These all allow for maximum discounts.
In many cases just comparing quotes from multiple companies can result in a lower premium. Whether you change insurers because one is significantly cheaper or whether you let your current insurer know of the lower rate and they lower your premium to keep your business; both are great options to maintain a low rate. This quote comparison should be done every time there is a major change in your driving history, lifestyle or vehicle change.
Being a conscious motorist will often pay dividends in your insurance premium rates, no matter your age or gender. By having a low risk driving record and shopping around for rates among insurers is your best bet to get the lowest rates possible for your situation and location.
In conclusion, insurance rates are complex calculations that take into account the weather, a state’s insurance legislation, competition, claim and litigation rates, traffic patterns and an individual’s personal details including driving history, vehicle, education, profession, neighborhood, credit score and marital status.
Although you cannot control many of these factors there are easy and convenient ways to lower your insurance premiums such as comparison shopping, maintaining a clean driving record, choosing the right vehicle and even lowering coverage or increasing your deductible.