Cost of Auto Insurance

How does my auto insurance company decide what it charges me? That's probably the most asked, least understood question about motor vehicle insurance coverage. Each insurer has thousands of auto insurance rates in every state it does business—rates for each type of car, each driver and every geographical area in the state. Each company also has its own surcharges and discounts available that impact these rates.

Most insurers have three basic goals in mind:

1. They need to make enough money to cover all their policyholders' claims and pay their overhead expenses (staffing, light bill, phone bill, etc.), and if they're publicly held, still have enough money left over for their shareholders.

2. They want to balance their risk by charging higher rates to drivers who file more costly claims, more often and lower rates to those drivers who file less expensive claims, less often.

3. They want to stay competitive with other insurers in the markets they do business.

State Government Regulations

How your insurance rates are set also depends in part on which state you live in, because rates are regulated on a state-by-state basis. The insurer has to follow the regulations of the state you live in. Click on your state below to contact your state insurance department.

Also visit: Colorado | New Mexico | Utah | Wyoming

Auto Insurance Cost Q&A

Q. Why are my auto insurance premiums rising?

A. Over the past two years, both the accident rate and the size of insurance claims have climbed dramatically. These are the largest and most volatile components of auto insurance. A white paper, done by the Insurance Information Institute (iii) documents the increase in costs, suggesting some factors that may be causing the increases. The paper also discusses what insurance companies are doing to keep costs in check and what consumers can do to reduce the cost of their own insurance.

Click here to read the iii White Paper: More Accidents, Larger Claims Drive Costs Higher (October 2016) by iii

Click here to see the Slide Deck on Personal Automobile Insurance Rates (October 2016) by iii

Q. Why do things like my age, gender, credit and driving record affect what I pay for auto insurance?

A. What you pay for insurance is largely based on what kind of risk the company predicts you will be, based on known factors like your driving history, the kind of car you drive, how old you are, your gender, your marital status and where you live. These judgments aren't just based on instincts or whims. Insurance rates are based on a wealth of statistical data compiled by your company over a long period of time (commonly up to 20 years). Most insurance companies divide auto risks into three basic types:

• Preferred (low risk)
• Standard (average risk)
• Non-standard (a nice way of saying high risk)

Q. Why does it matter what kind of car I drive?

A. Increasingly insurance companies are basing insurance rates on their claims experience when it comes to the safety record of the make and model of vehicle you are driving. Factors insurance companies may likely consider: crashworthiness, safety features (i.e. airbags, automatic seatbelts, anti-lock brakes), popularity with thieves, cost to repair, age of the vehicle. Every year new cars are separated into various categories according to price by insurers. The number of categories vary from one insurance company to another, but a basic premium is assigned to each price group. For more information on crash testing click here for the Insurance Institute for Highway Safety (IIHS).

Q. Why do my premiums go up if I get a traffic ticket or I'm involved in an accident?

A. Getting several tickets in a short period of time or being involved in an accident can put you in a higher risk classification depending on the severity of the violation and cost of the accident. However, your rates won't automatically go up.

Q. Why do auto insurance premiums vary depending on what I use my car for?

A. Typically, cars are classified based on whether they are used for driving to work, business, pleasure or farming. Cars used primarily for pleasure tend to have the lowest premiums, while cars used for business generally have higher premiums. Insurance companies determine classifications by the number of miles driven per year since the more you drive your car the more likely you are to get into an accident.

Q. What is the average cost of auto insurance?

The average insurance expenditure is calculated by adding all auto insurance premium collected for liability, comprehensive and collision coverages, and dividing by the number of insured cars for the year. This average is based on all policies - including liability-only and policies with optional comprehensive and collision coverage. Limits on policies vary widely and are based on state requirements as well as consumer choice.

The countrywide average auto insurance expenditure rose 1.0 percent to $1,070.47 in 2019 from $1,059.41 in 2018 according to the National Association of Insurance Commissioners. In 2019 (the latest data available), the average expenditure was highest in Louisiana ($1,557.22) followed by Michigan ($1,495.94), and New York ($1,445.30).

AAA’s 2021?Your Driving Costs?study found that the average cost to own and operate a 2021 model vehicle was $9,666 in 2021 when the vehicle is driven 15,000 miles per year. The average full-coverage insurance cost for medium sedans was $1,403, compared with $1,296 for a medium SUV. The average insurance cost for all vehicles, including pickups and hybrid and electric vehicles, was $1,342. AAA insurance cost estimates are based on a full coverage policy for a driver who is under 65 years of age, has more than six years of driving experience, has had no accidents, and lives in a suburban/urban location.

Cost of Auto Insurance by State

The tables below show estimated average expenditures for private passenger automobile insurance by state from 2019 to 2021 and provide approximate measures of the relative cost of automobile insurance to consumers in each state. To calculate average expenditures, the National Association of Insurance Commissioners (NAIC) assumes that all insured vehicles carry liability coverage but not necessarily collision or comprehensive coverage. The average expenditure measures what consumers spend for insurance.