Auto Loan Insurance: Average Cost Unveiled

The cost of insurance for an auto loan varies depending on factors such as the driver's age, gender, location, driving record, and credit score. On average, the monthly cost of car insurance in the US is $194 for full coverage and $53 for minimum coverage. The national average cost of car insurance is $2,542 per year for full coverage and $740 per year for minimum coverage. However, these costs can vary significantly depending on the specific circumstances of the driver and the requirements of the lender.

Full coverage insurance costs

The cost of full coverage insurance varies depending on a range of factors, including age, gender, driving history, location, and vehicle type. Here is a breakdown of the average costs of full coverage insurance in different scenarios.

By Age and Gender

The cost of full coverage insurance differs between males and females, especially at younger ages. For example, car insurance for an 18-year-old male costs around $461 per month, while it is approximately $412 per month for an 18-year-old female. As people get older, the difference in costs between genders decreases. By the age of 40, there is usually no difference in insurance costs between males and females.

By State

The state in which one resides also influences the cost of full coverage insurance. Louisiana has the highest average monthly premium at $240, followed by Florida at $224, and California at $201. On the other hand, Idaho has the lowest average annual premium at $1,322, with Vermont at $1,385, and Ohio at $1,497.

By Vehicle Type

The type of vehicle being insured also plays a role in determining the cost of full coverage insurance. Vans tend to be the cheapest to insure, with an average monthly premium of $150. In contrast, sports cars are the most expensive, with a monthly premium of around $269.

By Driving Record

An individual's driving record significantly impacts the cost of full coverage insurance. Having a clean driving record can result in lower premiums. Conversely, those with a history of accidents, speeding tickets, or DUI convictions will likely pay higher rates. For instance, the average increase in the car insurance rate after a speeding ticket is about 39%.

By Credit Score

Credit score is another factor that insurance companies consider when determining the cost of full coverage insurance. Drivers with poor credit scores tend to pay higher premiums, as they are seen as more likely to file claims. On average, those with poor credit pay about 87% more for full coverage insurance compared to those with good credit.

Factors that affect insurance costs

Several factors influence the cost of car insurance. Here are some of the most significant ones:

Age and Driving Experience

Young and inexperienced drivers typically face higher insurance rates because they are more likely to be involved in accidents. According to the Insurance Institute for Highway Safety, drivers aged 16 to 19 are three times more likely to be in a fatal crash than those over 20. As drivers gain more experience and age, their insurance rates tend to decrease, with rates usually reaching their lowest point when drivers are in their mid-50s.

Driving Record

Your driving history is one of the most critical factors in determining insurance rates. Insurance companies typically review your record from the past three to five years, and any accidents, traffic violations, or DUIs will result in higher premiums. Safe driving habits can help improve your record over time, leading to better insurance rates.

Location

Where you live plays a significant role in insurance pricing. Urban areas generally have higher insurance rates due to increased traffic, higher rates of theft and vandalism, and a lack of secure parking. Additionally, states with harsh weather conditions, frequent accidents, or high medical care costs tend to have more expensive insurance.

Type of Car

The type of car you drive affects insurance rates. Luxury vehicles, sports cars, and cars with expensive parts or advanced technology are costlier to repair or replace, resulting in higher insurance premiums. The brand of the vehicle also matters, with Dodge having the highest average insurance costs and Mazda the lowest.

Credit Score

In most states, insurance companies consider your credit score when setting rates. They associate lower credit scores with a higher likelihood of filing claims. However, California, Hawaii, Massachusetts, and Michigan have banned the use of credit scores in determining insurance rates.

Insurance History

If you're a new driver or have had gaps in your insurance coverage, you'll likely pay higher rates. Insurance companies view continuous coverage as a sign of lower risk. Additionally, having a long claims history will cause your premium to increase.

Coverage Selections

The amount and types of coverage you choose will impact your insurance costs. While liability insurance is required in most states, you may need additional coverage, such as collision, comprehensive, or uninsured motorist insurance, to ensure adequate protection.

Gender

Gender can influence insurance rates, particularly for young drivers. Male teen drivers often pay more than their female counterparts because insurance companies perceive them as more likely to take risks. However, some states have banned the use of gender in determining insurance rates.

Marital Status

Married drivers usually pay slightly less for insurance than single, divorced, or widowed drivers. Insurance companies consider married individuals safer and more financially stable, often qualifying them for bundling or multi-vehicle discounts.

Mileage

The number of miles you drive annually can impact your insurance rates, especially in California. Lower mileage tends to result in lower insurance premiums.

Insurance Company

Different insurance companies offer varying rates for the same coverage. Shopping around and comparing quotes from multiple providers can help you find the most affordable option.

How much insurance is needed

The amount of insurance needed depends on several factors, including the state you live in, the value of your car, and your financial situation.

State Requirements

Nearly every state requires drivers to have car insurance, specifically liability insurance, which covers injury to other people or damage to their property. The minimum amount of liability insurance you need varies by state. For example, in California, the minimum liability insurance is $15,000 for bodily injury to one person, $30,000 for bodily injury to multiple people in a single car accident, and $5,000 for property damage. In New York, the minimum liability insurance is $25,000 per person and $50,000 per accident for bodily injury and $10,000 for property damage.

Lender Requirements

If you lease or finance your car, your lender will likely require you to purchase collision and comprehensive insurance, which covers damage to your own vehicle.

Expert Recommendations

Experts recommend purchasing enough insurance to cover your net worth, including your home, savings, and other valuable possessions. This will protect you in case you are sued after an accident. If you have little to no net worth, you may still want to purchase more than the minimum liability insurance to avoid being sued and having your wages garnished.

In addition to liability, collision, and comprehensive insurance, you may want to consider the following types of insurance:

• Uninsured/underinsured motorist coverage: Protects you if you are in an accident with a driver who does not have insurance or does not have enough insurance.
• Personal injury protection: Covers your medical bills after an accident, regardless of who is at fault.
• Guaranteed auto protection (GAP): Covers the difference between your car's value and what you owe on your loan if your car is totalled.
• Rental car reimbursement: Helps offset the cost of renting a vehicle while your car is being repaired.
• Roadside assistance: Provides help with car issues such as flat tires or dead batteries.

Why some cars are more expensive to insure

The average cost of car insurance is influenced by various factors, and certain cars are more expensive to insure than others. Here are several reasons why some cars are more costly to insure:

Retail Price and Market Value

The price of insurance is often linked to the value of the car. Generally, more expensive cars will lead to higher insurance premiums. This is because comprehensive and collision coverage policies will require the insurance company to pay out the car's market value if it is stolen or damaged beyond repair. Newer cars with advanced technology and safety features also tend to be more expensive to insure.

Repair Costs and Parts Prices

High-end models with specialized parts made from materials like carbon fiber can drive up repair costs. Cars with expensive engine parts, such as electric vehicles, will also be more costly to insure. Additionally, newer cars with advanced technology may have higher repair and replacement costs, which are factored into insurance rates.

Safety Features and Crash Ratings

Vehicles with superior safety features and crash test ratings can help reduce insurance costs over time by decreasing the likelihood of injuries and subsequent claims for medical payments. On the other hand, cars with poor safety ratings or those prone to rolling over or catching fire will likely have higher insurance premiums.

Theft Rates and Security Features

Cars that are frequently stolen or targeted by thieves tend to be more expensive to insure. This is because comprehensive insurance covers losses due to theft, and insurers factor in the risk of theft when calculating premiums. Older cars without modern security features, such as alarms and immobilizers, may also be more expensive to insure.

Performance and Horsepower

High-performance cars, such as sports cars, often have higher insurance rates. These vehicles are designed for speed and are more likely to be driven aggressively, increasing the risk of accidents and traffic violations. As a result, insurers view these cars as riskier to insure.

Age and Condition of the Vehicle

Older cars may have higher insurance rates due to their age, make, model, condition, and mileage. While the assumption is that insurance costs decrease with the car's value, this is not always true. For example, an old luxury car like the Porsche 911 may be more expensive to insure than a new hatchback.

Group Ratings and Risk Factors

Insurance companies categorize cars into groups based on risk factors such as repair costs, safety features, performance, and theft rates. These groups help determine the insurance premiums for each vehicle. Cars in higher-rated groups tend to be more expensive to insure.

Location and Crime Rates

The location of the vehicle also impacts insurance costs. Parking a car in a secure garage or monitored car park will likely result in lower premiums than leaving it on a public road. Additionally, areas with higher crime rates, including theft and vandalism, will typically have higher insurance rates.

In summary, the cost of insuring a car is influenced by a combination of factors, including the car's value, repair costs, safety features, theft rates, performance, age, group ratings, and location. These factors help insurance companies assess the risk associated with insuring a particular vehicle, and they are reflected in the insurance premiums charged to the owner.

How to save on insurance

The average cost of car insurance is on the rise, with the national average annual car insurance cost being $1,718 for full coverage and $488 for minimum coverage. However, there are several ways to save on car insurance:

• Shop around for insurance: Compare insurance costs and get quotes from different insurance companies and different types of insurance companies. Check car insurance quotes and look for a company with a good reputation for customer service.
• Choose a higher deductible: Opting for a higher deductible can lower your insurance premium. However, remember that a higher deductible means you will have to pay more out of pocket if you make a claim.
• Reduce optional insurance on older cars: If your older car is worth less than ten times the insurance premium, having collision and/or comprehensive coverage may not be cost-effective. Consider the value of your car and whether the cost of insurance is justified.
• Bundle your insurance: Many insurers offer discounts if you purchase multiple types of insurance from them, such as homeowners and auto insurance, or if you insure more than one vehicle with them.
• Maintain a good credit history: Establishing a solid credit history can lead to lower insurance costs. Many insurers use credit information to price auto insurance policies, as people who effectively manage their credit tend to make fewer claims.
• Take advantage of low-mileage discounts: Some companies offer discounts to motorists who drive less than the average number of miles per year. This includes drivers who carpool to work.
• Ask about group insurance: Some companies offer reductions to drivers who get insurance through a group plan from their employers or other associations. Check with your affiliated organizations to see if they offer any discounts.
• Seek out other discounts: There are various other discounts that your insurer may offer. For example, some companies offer discounts to drivers who have not had accidents or moving violations within a specified period or who have taken a defensive driving course. If you have a young driver on your policy who is a good student or has taken a driver's education course, you may also qualify for a lower rate.
• Pay annually: The way you pay for coverage also impacts the cost. Paying the full amount upfront can often save you money compared to paying monthly or periodic payments.
• Bundle your household's policies: If you have more than one vehicle in your household, you can typically save money by bundling your policies with the same insurance company.
• Maintain a safe driving record: Your driving record affects your insurance costs. Speeding, at-fault accidents, reckless driving, DUI arrests, and racing tickets can all lead to significant increases in your premium.
• Consider a telematics program: Using a device or smartphone app that tracks your driving behavior can result in significant discounts on your insurance rates.

Frequently asked questions