Dear Credible Money Coach,
I drive a 2016 Hyundai Tucson Sport that I bought brand new and carry full coverage on. My last accident involving only my truck was back in 1998. I’ve had none since. I’m 75 years young. Why is my auto insurance high — about $790 a year? — Eileen
Hi Eileen! Thanks for your question, and congratulations on what looks like a great driving record. It’s widely reported that the average person will get in about four accidents in their lifetime, which shakes out to around one every 18 years or so. With 23 years accident-free, you’re doing better than average!
Since you’re 75, you’re likely retired and on a fixed income, so $790 a year can feel like a significant burden. It may help to know, though, that your annual premium is actually well below the national average. U.S. News and World Report just studied auto insurance costs and found that the average annual premium is $1,321. Researchers looked at data from the nine largest national auto insurers and found significant differences in premium amounts depending on multiple factors.
You can visit Credible’s online marketplace to get insights into how auto insurance works and see multiple auto insurance quotes.
Let’s look at some factors that the Insurance Information Institute, or III, says can affect auto insurance premiums.
The most important factor when it comes to insurance costs for most consumers is the type of car we drive. If you drive an expensive vehicle and get into an accident, it’ll likely cost the insurance company more to repair than a less expensive car. Likewise, if your car is a make and model that’s often stolen, or has a poorer safety record, your premium might be higher. In contrast, cars equipped with lots of safety features may qualify for premium discounts.
How many miles your car is driven also comes into play. A vehicle used daily for a long commute will rack up more miles (and depreciation) than a car driven solely for pleasure — and you’ll probably face a higher premium.
It’s no surprise that your driving record affects your auto insurance premium. Drivers with more accidents or moving violations are likely to pay a higher premium than drivers with few or no marks on their records.
Your age and gender also help determine your premiums. Generally, women pay less than men because statistically they’re less likely to get into accidents, less likely to get into severe accidents, and less likely to drive under the influence, the III says. Of course, that’s general data and every driver’s ability level is unique.
While it’s probably no surprise that drivers under 25 tend to pay the most — because they’re less experienced and therefore generally more susceptible to accidents — it may be eye-opening to hear that premiums start to rise again when a driver reaches 65. In fact, multiple reports indicate that average insurance premiums for older drivers can actually be higher than averages for drivers 25 and younger.
Finally, some auto insurers consider your credit score when determining your premium. Insurers look at your credit score as a predictor of how likely you are to file a claim, and how much your claim might cost if you do file. Yet another reason to strive for a high credit score! It’s worth noting that several states have laws that prohibit auto insurers from using credit scores as a factor in underwriting decisions.
Where you live, drive, and keep your vehicle all can affect your insurance premium. Drivers who live or work in cities generally pay more because of higher rates of vandalism, theft, and accidents in urban areas. And if you park your car in a secure garage rather than on the street, your premiums may be lower.
And, of course, premiums can vary widely based on the state you live in. III data shows the state with the highest rates is Louisiana, while North Dakota has the lowest average insurance cost.
The type and amount of insurance you have also affects your premium. Eileen, you say you have full coverage on your 2016 Tucson Sport. "Full coverage" generally means you have liability (required in most states), collision, and comprehensive. Full coverage typically costs more than the bare minimum required by law.
The amount of your deductible also influences your premium. Generally, the higher your deductible, the lower your premium, and the lower your deductible, the higher your premium.
Finally, the insurance company you use has a big impact on how much you’ll pay each year. While all auto insurers offer the same services, not every insurance company is perfect for every driver. It’s important to comparison shop for the best insurance company (and policy) for your needs — especially if you feel you’re paying too much now.
Comparing rates and coverages through Credible’s online marketplace is a good way to find a policy that fits your needs at a price you feel is fair.
Ready to learn more? Check out these articles …
- Why you need a car dash cam
- Car insurance 'age tax' could impact two generations
- What to know about pay-per-mile car insurance
- Is it a good idea for drivers to buy GAP insurance?
- Does insurance pay off a totaled car?
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About the author: Dan Roccato is a clinical professor of finance at University of San Diego School of Business, Credible Money Coach personal finance expert, a published author, and entrepreneur. He held leadership roles with Merrill Lynch and Morgan Stanley. He’s a noted expert in personal finance, global securities services and corporate stock options. You can find him on LinkedIn.