Most states in the United States require their drivers to carry auto insurance on their vehicles. Not only does this policy protect you from any financial liabilities, but it also keeps you compliant with your state.
So just how much is the cost of car insurance? What type of variables causes your rates to hike up?
Let’s find out together! In this brief auto insurance guide, we will cover the many factors that determine the cost of your auto insurance policy.
The Average Cost of Car Insurance
The average cost of car insurance depends on several different factors, such as where you live and your driving habits. The underwriting process that determines how much you will pay for your premium takes your job and the type of vehicle you drive into consideration as well.
The average cost for a car insurance policy in Michigan is about $2,900 annually, whereas a policy in Vermont could cost you about $945 per year. Of course, the exact amount you pay for your premiums depends on several different variables, so it is best to reach out to various local car insurance companies to compare quotes.
What Insurance Covers
Most auto insurance policies come standard with liability insurance, also known as bodily injury or property damage coverage. Depending on the state you live in, you may need to carry the state minimum liability insurance coverage.
For example, in Texas, you must carry property damage coverage of at least $25,000 and bodily injury coverage of at least $30,000/$60,000 per occurrence. The per occurrence means that per each accident, your policy will cover up to $30,000 per person injured and up to $60,000 per accident.
What Is Property Damage Coverage?
If your insurance company finds you at fault for the accident, property damage coverage will take care of the other driver’s damage. Let’s say that you accidentally hit the rear of a stopped vehicle.
Your insurance company will most likely find you at fault, and they will take care of the damages to the other person’s car. Your property damage coverage will cover the vehicle damages on your behalf, and you will not need to pay anything out of pocket.
What Is Bodily Injury Coverage?
Bodily injury coverage kicks in to pay for any injuries you caused in the accident. Using the same example from above, let’s say the driver sustains injuries from the accident.
Your auto insurance company will take care of their injuries, and you won’t have to pay anything out of pocket. If the other driver decides to get an attorney, your auto insurance company will cover the attorney fees under your policy coverages.
First-Party Coverages
Now that you know about the liability coverages that come standard with your auto insurance policy let’s talk about the coverages available for you. When you sign up for your policy, whether you do that online or with an agent, they will present you with collision and comprehensive coverages to add to your policy.
What Is Collision Coverage?
Collision coverage helps to take care of the damages done to your vehicle in the event of an accident. When you hit another car or other property, you can use collision to repair your vehicle less your deductible.
When you sign up for your policy, you have the opportunity to choose your deductible amount. Depending on your insurance carrier, it can be as low as $0 or as high as $2,500 or more.
The higher your deductible, the lower your auto insurance premium. Why? Let’s break down collision coverage further to explain better.
Let’s say that you hit another vehicle and your damages total to be around $10,000, and you have a deductible of $500. Your auto insurance company will pay $9,500, and you will need to pay the remaining $500.
When you opt for a lower deductible, your insurance company has to pay more in the event that you damage your vehicle in an accident. Your insurance company does not have to pay too much with a higher deductible.
Keep in mind that you can use your collision coverage regardless of liability. If you are found to not be at fault for the accident after using your collision coverage, the at-fault insurance carrier will reimburse your deductible.
What Is Comprehensive Coverage?
Comprehensive coverage covers accidents that do not involve collisions, such as flood damage or fire. If you hit a deer while driving down the road one day, you can have your vehicle repaired under your comprehensive coverage. Just like your collision coverage, you have the opportunity to pick your deductible.
First-Party Medical Coverages
First-party medical coverages, such as medical payments and personal injury protection, do not come standard on your insurance policy. If you wish to have these added to your car insurance policy, you will need to add them, which will add an additional cost to your annual premium.
Medical Payments
Medical payments are a type of coverage you can add to your policy to help take care of any injuries you sustain in an accident. Medical payments will only pay for any medical bills and do not cover any loss of income.
Personal Injury Protection
Personal Injury protection, also known as PIP, is another type of medical coverage you can add to your policy. Just like medical payments, you can use your PIP coverage to pay for your injuries, but PIP coverage comes with additional benefits.
For example, if you have to miss work due to your injuries, you can claim lost wages through your PIP coverage. Of course, like with any coverage elected on your auto insurance policy, there is a limit on how much coverage you can use.
How Your Coverages Affect Rates
The coverages you add to your policy affect how much you can expect to pay each month for your car insurance payment. More importantly, the limits you choose affect the price. When you sign up for your policy, you have the option to elect for either more coverage or the state-required minimum.
Other Important Factors
Determining how much you will pay for your premium is hard to gauge due to the many factors influencing your rates. For example, suppose you need to obtain car insurance for business. In that case, you will need to purchase a commercial auto policy which can have higher rates than other types of car insurance policies.
Age Factor
As you may have already guessed, the younger the driver, the more expensive the policy will cost. This is because younger drivers, such as teenagers, don’t have the driving experience, making them more of a risk. In fact, auto accidents are the second leading cause of death for teenagers in the United States.
Most insurance companies categorize young drivers as anyone between the age of 16 to 25. The average 20 year old can expect to pay about $3,300 for full coverage insurance and around $1,200 for the minimum state-required coverages. As you age, you can expect your rates to decrease over time, but generally, those categorized as young drivers can expect higher rates.
Credit Score
Most auto insurance companies consider your credit score when rating your policy. A lower credit score indicates to the insurer that you are more likely to file a claim.
A higher credit score indicates that you are more likely to pay your bills, which means you are less likely to commit insurance fraud or have your policy canceled. Certain states, such as Michigan, California, Hawaii, and Massachusetts, do not allow auto insurers to use credit when determining your rates.
Reckless Driving
If you have a DUI or other significant motor vehicle violation, you can expect to have higher auto insurance rates. When you have substantial infractions like that, you are seen as a much higher risk than the average driver.
It is important to note that not all auto insurance companies take drivers with DUIs or other reckless driving records. Depending on the state where you received the violation, you may need to obtain an SR-22 certificate.
Protect Yourself Today!
The cost of car insurance depends on several factors, such as your driving habits and where you live. If you live in a more urban area with more drivers, there is a higher chance that you will need to pay more than a driver in a more rural area.
Of course, the only way to know how much you will pay for your car insurance is by requesting a quote! If you found this article helpful, check out our Vehicle & Transportation section for more information!
