Auto Insurance Premiums: The 25-Year-Old Drop

Auto insurance rates are typically cheaper for 25-year-olds than younger drivers, as drivers under 25 are statistically more likely to cause accidents and file insurance claims. However, a drop in insurance rates is not guaranteed when a driver turns 25, as insurance companies consider various other factors when setting rates, such as marital status, location, vehicle type, driving record, and credit history. While age is a significant factor in determining insurance rates, it is important to consider these other factors that can influence the cost of auto insurance for a 25-year-old.

Auto insurance rates for 25-year-olds are cheaper than for younger drivers

Auto insurance rates for 25-year-olds are generally cheaper than for younger drivers. This is because drivers under the age of 25 are statistically more likely to cause accidents and file insurance claims. Insurance companies consider drivers under 25 to be riskier to insure, and so they charge higher premiums to mitigate this risk.

The difference in rates is significant. On average, 25-year-old drivers could pay thousands of dollars less per year for coverage than a newer, younger driver. For example, the average cost of car insurance for most people is $4,862 per year cheaper at 25 than at 16. The exact decrease in rates varies depending on factors such as location, gender, and driving history. For instance, in Louisiana, a 25-year-old driver pays an average of $10,248 less per year than a teenage driver.

While age is a significant factor in determining insurance rates, it is not the only one. Other factors that insurance companies consider include marital status, location, vehicle type, driving record, annual mileage, and credit history. It is also important to note that car insurance rates are not guaranteed to decrease at age 25, as these other factors may offset the usual decrease in rates. Additionally, the decrease in rates may not be immediate, and drivers may need to switch insurance providers to see the savings.

To further reduce auto insurance costs, drivers can compare rates from multiple companies, adjust coverage and deductibles, bundle insurance policies, take a defensive driving course, and improve their credit score.

Drivers under 25 are statistically more likely to cause accidents and file insurance claims

• Inexperience: Younger drivers are less experienced than older drivers and may not have the skills to recognize and avoid road hazards. They may also be more likely to panic or overcorrect in unexpected situations, leading to accidents.
• Distracted driving: Drivers under 20 have the highest rates of distraction-related fatalities, particularly due to texting and using cellphones while driving.
• Reckless driving: Teen drivers tend to be more reckless behind the wheel, engaging in risky behaviours such as speeding, drinking and driving, and not wearing seatbelts.
• Night-time and weekend driving: Teenagers whose licenses no longer have night-time driving restrictions are at a higher risk of fatal accidents. Additionally, half of all teenage deaths from car crashes occur between Friday and Sunday.
• Driving with friends: There is a link between the number of teen passengers in a car and the risk of a crash when an unsupervised teenager is driving.
• Lower credit scores: Teenagers and drivers under 25 are less likely to have built up a credit history, and are therefore considered higher-risk by insurance companies.

Due to these factors, insurance companies view younger drivers as more likely to file insurance claims, and charge them higher premiums to account for this increased risk.

Insurance rates for 25-year-olds vary by state and gender

Insurance rates for 25-year-olds can vary depending on several factors, including state, gender, marital status, location, vehicle type, driving record, and credit history. While rates typically decrease as drivers reach their mid-20s, the specific amount of the decrease can differ across states and between genders.

In terms of state, Louisiana is the state where the cost of insurance goes down the most for 25-year-olds, with an average decrease of $10,248 per year compared to a teenage driver. Florida is another state where insurance rates tend to be higher for drivers of all ages. On the other hand, Hawaii, North Carolina, and Ohio have the cheapest average auto insurance rates across different age groups.

Regarding gender, male drivers generally pay more for car insurance than female drivers. On average, male drivers pay 6% more per year than females of the same age, which equates to a difference of about $245 annually. However, this gap narrows as drivers age. For example, at age 50, males only pay $8 more per year for full coverage than females of the same age. Additionally, some states, such as California, Hawaii, Massachusetts, Michigan, North Carolina, and Pennsylvania, prohibit the use of gender as a rating factor, resulting in equal rates for men and women with similar profiles.

It is important to note that insurance rates are influenced by a combination of factors, and age is just one of them. Other factors, such as driving record, credit score, claim history, and coverage choices, can also have a significant impact on insurance rates.

Age is not the only factor influencing insurance rates

Marital Status

Married policyholders typically pay less on their premiums than single people. According to insurer The General, married individuals pay 5% to 15% less. Conversely, divorcees can expect to pay around $50 more for a six-month coverage period.

Location

Urban residents tend to pay more for insurance than those in suburban and rural areas due to higher accident, theft, and vandalism rates. Living in a state with higher minimum insurance coverage requirements will also result in higher insurance rates.

Vehicle Type

Insurance companies rate different car models based on factors like theft likelihood, safety features, and repair costs. Vehicles with high safety ratings often receive insurance discounts, while those with high repair costs may lead to higher premiums.

Driving Record

A history of accidents, speeding tickets, or other violations increases the likelihood of filing an insurance claim, resulting in higher premiums. A clean driving record, on the other hand, can lead to lower rates and safe-driver discounts.

Annual Mileage

The more one drives, the higher the chances of an accident, which is reflected in higher insurance rates for those with longer daily commutes.

Credit History

In most states, auto insurance companies use credit history to help determine insurance rates. A lower credit score may increase insurance rates, as insurers associate it with a higher risk of loss.

Coverage Level

The types of coverage and the amount of insurance coverage also affect insurance rates. Increasing coverage or the deductible will lead to higher premiums.

You can take steps to lower your insurance costs

Auto insurance rates typically decrease when a driver turns 25, as they are no longer considered as risky to insure. However, this drop in insurance rates is not guaranteed for all drivers, and there are several factors that can influence insurance costs. Here are some steps you can take to lower your insurance costs:

Shop Around for Better Rates

It is worth getting quotes from multiple insurance companies, as rates can vary significantly between insurers. Comparing rates from different companies can help you find a more affordable option. Additionally, each insurer weighs various factors differently when determining rates, so shopping around may result in finding a company that weighs certain factors more favourably for your situation.

Adjust Coverage and Deductibles

Some insurance companies offer optional coverage that may not be necessary for your specific circumstances. Review your policy for any extra coverage that you may not need and consider adjusting your deductibles. If you have an emergency fund, you can increase your deductible and potentially lower your premium.

Bundle Your Insurance Policies

Most insurance providers offer discounts to customers who purchase multiple policies with them. You may be able to save on your auto insurance by bundling it with other types of insurance, such as renters, homeowners, life, or motorcycle insurance.

Take a Defensive Driving Course

Some insurance companies offer discounts to drivers who complete a defensive driving course, whether it's online or in-person. Check with your insurer to see if they offer this type of discount. Not only will you become a safer driver, but you may also be able to save on your insurance costs.

Improve Your Credit Score

Insurance companies may consider your credit score when determining your insurance rates. Improving your credit score can help lower your insurance costs, as it demonstrates financial stability and responsibility.

Maintain a Good Driving Record

Insurance companies favour drivers with clean driving records. Avoiding accidents, tickets, and insurance claims will help lower your insurance costs over time. Safe and responsible driving behaviour will lead to more favourable insurance rates.

Consider Telematics or Usage-Based Insurance

Signing up for a telematics or usage-based insurance program can help lower your insurance costs, especially if you are a safe driver. These programs use a tracking device to monitor your driving performance and offer discounts for safe driving habits.

Take Advantage of Discounts

Insurance companies often offer various discounts that can help lower your insurance costs. Ask about discounts for professional or academic organizations, accident-free driving records, low mileage, bundling policies, paying your premium in full, electronic billing, safety features on your vehicle, and more.

Frequently asked questions