After you’ve purchased car insurance coverage, you might expect your rate to remain the same over the life of your policy as long as you don’t get in an accident. But premiums can increase without much warning due to changes in any number of factors that determine your rate.
It’s especially expensive if:
You’re less than 25 years old. Under-21 and under-25 drivers pay the most for car insurance.
You have a full coverage policy. Liability-only policies are the cheapest.
You drive an expensive car. Luxury cars cost more to repair and therefore more to insure.
You’ve made several claims. Insurers charge more for drivers with spotty driving records.
Why did my car insurance rates go up?
Your car insurance rates are largely influenced by where you live, your driving record and the type of vehicle you drive. While your driving behaviors and overall risk can affect your premiums, factors that are out of your control can also increase your rates.
Common reasons for price increases
You’re driving a different car or moved to a different address.
The amount you drive went up.
Your credit score dropped.
You have new traffic violations on your record.
Your state passed new regulations.
Your insurer changed its risk and premium algorithm.
Cost of repairs increased.
Claims have increased in your area.
Price increases after a life change
The price of your car insurance depends on many personal factors that can affect your risk of filing claims and the cost of payouts. This is why most insurance companies require you to get a quote instead of posting rates online.
You could see higher insurance rates after a change to:
Your driving history. If you get a speeding ticket or hit another vehicle — no matter who’s at fault — expect an increase in your premium.
Where you live. Traffic, road conditions and theft rates vary by location. If you move to another ZIP code, you may see a change in your rates.
The car you drive. Cars don’t cost the same to repair or replace, and they don’t have the same safety features, performance or crash test results. This results in significantly different rates among makes and models. If you drive a different car, your rates will likely change.
Your credit score. The Federal Trade Commission found that credit-based insurance scores are effective predictors of risk, meaning your credit score can directly affect your rates in all but a handful of states.
Other coverage. Many providers offer discounts for multiple policies or vehicles under one brand. If you cancel another type of coverage on your policy, your rates may increase.
Your marital status. A recent wedding or divorce could cause your premiums to fluctuate, as can adding or removing drivers from your policy.
Your age. Drivers under the age of 25 typically pay more for insurance compared with older drivers. As you get older, you might see drops in premiums until about 60 or 65. Unfortunately, seniors tend to see higher rates.
Policy claims. If you’ve filed a claim recently, you can expect your premiums to increase, no matter who was at fault.
Find cheaper car insurance
Price increases after law and regulation changes
For the most part, car insurance is regulated at the state level, resulting in laws and regulations that vary across the nation. It’s why the rates you get in one state don’t necessarily guarantee the rates you’ll find in another.
Residents in Michigan, for example, pay the highest auto insurance in the US at an average annual premium of more than $2,500. High rates are in part due to the Great Lakes State’s laws requiring unlimited personal injury protection on all policies, which covers unlimited medical expenses resulting from a crash.
You might also see rate increases after major regulatory changes within the industry or your state. For example, if your state suddenly decides that uninsured motorist protection is mandatory for all drivers, insurance costs will likely increase across the state from the added coverage and risks.
Car insurance prices go up every year
At the end of the day, insurance is a business that’s looking to turn a profit. Structural changes, shifts in the economy, taxes and other factors can hurt a carrier’s bottom line. In turn, they can find ways to pass along increased fees to keep more money in their own pockets.
External factors providers consider include:
Rising medical costs. If you need medical attention after an accident, your provider may be on the hook for your bill. As the market changes and medical costs increase, your provider may up your rates.
Increase in claims. An increased number of claims for your provider may result in a rate increase to reduce the impact on its revenue.
Increase in theft or vandalism. Even if you’re a safe driver, car theft and other threat trends can lead to higher insurance premiums. Just driving a car model that’s likely to be stolen raises your rates — even if your car is never stolen.
Frequent natural disasters. As storms, hurricanes, tornadoes, wildfires and other extreme weather increase in frequency, drivers will report more damage and insurers will lose money in high risk areas.
Increasing cost of repairs. As technology advances, it’s getting more expensive to diagnose and fix car problems. If your provider is paying more for repairs, it could charge more for insurance.
Normal market inflation. The cost of goods and services rises each year by 1% to 2%. Just like groceries are a little more expensive each year, the same goes for car insurance. Your rates might increase to keep up with inflation.
I’ve been a loyal customer for years. Why did my insurance rates go up?
You might think that loyalty to your insurer will pay off in lower rates. Unfortunately, loyalty doesn’t count for much in the world of insurance. In fact, some providers hand out lower rates to new customers willing to switch from competitors.
Outside of loyalty discounts, staying with the same provider over time can actually end up costing you more due to something called price optimization.
What is price optimization?
Price optimization is a tactic some providers use to charge select customers more for auto insurance. Insurers know customers aren’t likely to notice tiny increases in premiums, so they increase rates to the point they think customers can tolerate without cancelling.
You might see a rate increase for no reason other than the fact that the algorithm determined you’re more likely to pay for an increase at renewal rather than switch to a competitor.
Other drivers can affect premium increases
When calculating your premiums, insurance providers note trends among drivers that include:
Distracted driving. Texting and other driving distractions are far more prevalent today than 10 years ago. Providers may adjust rates to reflect the higher risk for a collision.
Increase in accidents. Every new car added to America’s roads increases the chance of an accident, potentially increasing rates across policies.
More driving. Gas prices, commute times and weather can affect the amount of time people spend on the road. The more hours cumulatively spent behind the wheel can result in higher rates.
Neighborhood or state. Some areas simply see more accidents than others. If your commute takes you on a riskier route or accident-prone area, you might pay more.
Drunk driving. Driving in a state that’s prone to higher risk of DUIs or alcohol abuse could mean greater risk of impaired driving, which might lead to increased rates.
Distracted driving comparison
How much can my car insurance rates go up?
The amount of a potential rate increase is largely situational. Allstate has found itself in hot water with the Consumer Federation of America, for example, which claims some customers were charged over eight times the standard rate due to price optimization.
Rate increases can also come on the heels of a fender-bender or speeding ticket, which increases your risk to the insurer. You could see rate increases of 10% or more, depending on the infraction.
Prevent car insurance price increases in 7 easy steps
You can reduce the chance of paying a higher premium with a few helpful tips.
Look for discounts. Safe driving, loyalty and good student auto insurance discounts are just some of the ways available to shave money off your bill.
Lock in your rate. Many providers offer rate lock for up to a year as a benefit to loyal policyholders.
Pay in full. Rather than paying monthly, consider paying your full policy balance in full. You’ll prevent the possibility for monthly increases.
Sign up for accident forgiveness. Offered by big-name providers, this perk prevents your rates from increasing after your first accident. Some even include it at no extra charge.
Keep an eye on your bill. Before paying your premium, review your bill online or through an app to make sure you’re not hit with unexpected fees or rate bumps.
Review your policy annually. Go over your benefits and make sure they match up with your driving habits to get the coverage you need at the best possible price. You may be able to cut costs by adjusting your deductible or coverage limits — or dropping add-ons you no longer need.
Shop around. As your renewal date approaches, contact competitors for quotes. The data might be picked up by your provider’s algorithm, reducing the chance of optimization. Better yet, you’ll have alternatives at the ready if you do see an increase.
Unexpected rate increases can take you by surprise after you’ve nailed down your policy. The reasons for a jump can range from your driving behavior to factors beyond your control, like new driving trends in your city. Stay on top of your bill and look into perks like rate locks and accident forgiveness to buffer potential rate hikes.
Yes. As unethical as it sounds, price optimization is allowed in many parts of the US.
As of this writing, it’s illegal in these 19 states only:
However, you might have a hard time proving your rates increased due to price optimization and not some other factor.
Yes, depending on where you life. Insurance providers in all states except Hawaii, Massachusetts and North Carolina can use information from your credit report to calculate your insurance score, which outlines your risk to the insurer.
A low credit score could indicate to a provider a higher chance of defaulting on your bills or filing a claim, resulting in a higher rate.
Not always. It’s a good idea to keep an eye out for better policies and competitive pricing. But changing providers too often may raise red flags with new providers, which could lead to higher rates or rejected applications.
Yes. You might pay more for your car insurance depending on your new city’s laws and regulations, theft and vandalism rates, average number of accidents and weather conditions.
Peter Carleton is a writer that covers banking and investing, breaking down what you need to know about where you put your money. When Peter's not thinking about cutting-edge banking apps and robo-advisors, he runs a creative agency and spends his spare time cooking or reading.
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