Owning or leasing a vehicle can be one of the most exciting milestones for many drivers on the road, but it also comes at a cost that goes beyond the sticker price. One of the major costs that could make you slam on your brakes: your auto insurance premium.
In fact, the most recent Consumer Price Index (CPI) shows that motor vehicle insurance rates have risen 10.3% over the last year. That’s just the cost you’ll be responsible for to insure your vehicle. 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. And the average insurance cost for all vehicles was $1,342.
Your auto insurance premium isn’t set in stone and could be drastically higher or lower than someone else’s premium depending on a number of different factors insurers use to determine the level of risk they take on by extending a policy to you.
What kinds of factors determine your auto insurance premium?
Your auto insurance policy is an agreement between you and your insurance provider that states that in exchange for a regular premium, your insurer will cover the cost of any losses you may incur when an accident takes place. Your insurer assumes a certain level of risk when deciding to do business with you, so it’s important to them to vet you and your driving history to determine how much they need to charge you to feel comfortable assuming that risk and cover your losses in the event that you file a claim.
A few personal stats they’ll evaluate include your…
- Driving record
- Credit history
- The make and model of your vehicle, as well as the mileage
- Your location
- Personal demographics like your age and gender
5 reasons why your auto insurance premium may increase
Your auto insurance premium can change for a number of reasons; some of these may be in your control and others may be a result of the environment you’re in. Pinpointing why your premium may have gone up can help you make a game plan for how to reduce it.
- You had an accident or got a ticket: Because your driving record plays a huge role in your premium, you can expect any negative marks to affect your premium. Insurers may see you as a high-risk driver if you’ve been involved in an accident, even if the accident wasn’t your fault. The good news is that many insurance companies only consider the last three to five years of your driving record when calculating your rates, so a fender-bender won’t impact your rate forever. And some insurers may offer accident-forgiveness programs that cut you some slack and will ensure that your provider won’t raise your rate after your first accident.
- You live in an area where more claims occur: Even if you don’t file a claim, an uptick in claims in your area could cause your rate to rise.
- Inflation: No surprise here—when the cost of goods and services increases, it can even impact your car insurance. “It might feel random, but insurance companies may increase prices for inflation adjustments, or if the company as a whole is seeing higher claims rates than they expected across all drivers,” says Nestor Hugo Solari, cofounder and CEO of Sigo Seguros, an insurance technology company providing affordable access to car insurance for immigrant and working class communities.
- You no longer qualify for a discount: If you secured a lower rate when you first signed up for your policy thanks to a discount, you could see an increase in your rate when that deal expires. Say you were benefiting from an employee discount and you switched jobs, or you received a safe driver discount and got into an accident.
- You added a new driver to your policy: If you added a new family member to your policy, your rate will likely increase due to the added risk of a second driver. The exact increase will depend on their age and driving history.
How to save on your auto insurance premium
So your rate went up and you’re looking for ways to trim your costs. How do you do it? There are a few strategies you can explore.
- Shop around for a new policy: If you’ve been with your insurer for a while, it might be time to get back out there and request quotes from other insurers to see if you can secure a lower rate. You should aim to do this every few years, as your personal and financial circumstances may have changed and this could drastically alter how much you pay for your premium.
- Change your coverage level: You could consider reducing your coverage level, although this may save you money only in the short term. This will have the most meaningful and immediate effect on your price, although it [does mean] lower coverage in the event of an accident,” says Solari.
- Consider a bundled policy: Some insurers will give you a discount for purchasing more than one type of insurance policy from them, such as home and auto, or auto and life, and so on. Crunch the numbers to see if bundling your policies could help you save more than one individual policy.
- Raise your deductible: By opting for a higher deductible on your car insurance, you can significantly lower your premium costs. The tradeoff is that you’ll need to have enough money set aside to pay for the higher deductible in the event that you file a claim.
- Work on boosting your credit score: Your credit score is a key factor used by insurers to set your rate. Regular checking your credit report for errors and maintaining positive habits like on-time payments and low balances can help you keep your score in good shape and secure a better rate.
Your auto insurance premium can creep up for a number of reasons that may not always be a result of your own actions. By regularly monitoring your bill, scouring for discounts, practicing positive financial habits, and actively communicating with your provider to learn about ways you can save, you can make sure that your premium doesn’t stretch your budget too thin.
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