Although Car Prices May Fall This Year, Auto Insurance Will Increase. Here's Why.
- Author: Bernard Langworth
- Posted: 2023-12-01
Individuals are spending more money on car insurance, and the expense is expected to rise further.
Drivers in the United States are paying approximately 2.93% of their salary on car insurance this year, according to Bankrate, calculated on an average yearly cost of $2,014 for comprehensive insurance coverage and a nationwide average annual salary of $68,852. This percentage increased from 2.57% in 2022 when the average rate was $1,771. And the disparity implies that auto insurance premiums rose by roughly 14% from 2022 - 2023, contrasted to a 6.5% increase in yearly inflation in December.
Worse, experts predict that rates will continue to rise this year as car insurers try to keep up with the skyrocketing costs of repair components, labor, and claims. That implies that most car insurers are losing a lot of money on car policies.
Which States Spend the Most of Their Money On Car Insurance?
New Yorkers spend the highest proportion of revenue (5.05%, up 1.18 basis points compared to a year ago) on auto insurance. The average yearly rate in the state is $3,139, significantly higher than the $2,014 national average and $143 more than the previous year.
According to the insurance editor for Bankrate, Cate Deventer, the state's congested roadways are "likely responsible in part" for the expensive price. More cars on the road raise the chance of accidents and, consequently, the risk to car insurers, who must charge a greater rate to make up the difference.
The next-closest state was Florida, which saw an increase of 0.48 percentage points to 4.9% and a $3,183 average yearly rate, up $421 from 2022.
Which States Pay the Least of Their Earnings On Car Insurance?
The lowest rate is paid by Mainers, who spend just 1.03% of their salary on auto insurance. This is most likely a consequence of Maine's much lower population density than Florida or New York, which leads to fewer traffic accidents. From the previous year, that proportion decreased by 0.41%. Despite an increase of $65 from the previous year, Maine's average comprehensive insurance rate is $941, 53% less than the national rate. Vermont came in second at 1.16%, with an average yearly premium of $1,061, an increase of $61 from 2022. Vermonters spent 1.48% of their salary on auto insurance last year.
Why Are Americans Paying More for Automobile Insurance?
Rising replacement parts, labor, and medical care costs, as well as rises in the frequency and intensity of collisions, as well as high numbers of personal injury verdicts and vehicle burglaries are all driving up insurers' costs, according to Deventer.
Some of these expenses have already been transferred to customers, but there will be more. Car insurance costs linger because insurers must present new prices to the insurance departments in every state where they operate and wait for permission before raising rates.
How Much More Will People Have to Spend on Auto Insurance?
According to a study from research company ValuePenguin, car insurance rates in the United States are anticipated to rise by 8.4% in 2023, the highest premium increase in six years.
According to ValuePenguin, the typical cost of comprehensive auto insurance is anticipated to be $1,780 annually, but prices vary greatly between states. Progressive, for example, recently obtained permission in California for a 19% rate rise for those renewing or purchasing new plans.
What Else Influences Your Car Insurance Rate?
The following factors influence your auto insurance rate:
• Location - City, state, and, in the majority of locations. Even where you live in the city has an impact on your rate. There are various dangers in various places. For instance, population density and crime rates both have an impact on crash rates.
• Driving Record - You may be identified as a high-risk motorist due to coverage gaps, penalties for speeding or other traffic infractions, at-fault incidents, or intoxicated driving.
• Credit Score - Statistics show that drivers with poorer credit ratings make more claims, which raises rates. Drivers with outstanding credit spend 49% less on average than those with bad credit.
• Teen Driver - Your rate may increase by more than doubling if a teen motorist with minimal driving experience is added.
• Type of Vehicle - Vehicles that are more expensive to maintain or replace will typically cost more to cover.
How Does This Affect Me?
Plan to pay a higher premium for car insurance and double-check your coverage to ensure you're not underpaid.
Assume you have insurance with a $25,000 physical accident liability limit per individual, which is often the bare minimum in most states, and you cause an accident that causes severe injuries to another person. Because medical care expenses have increased dramatically with inflation, $25,000 will no longer be enough.
Because of this, Tennessee and New Jersey each raised their minimum coverage standards on January 1, and whether other jurisdictions will follow suit remains to be seen. As the expense of living rises, minimum limits may no longer be adequate, and more jurisdictions may raise their requirements.
