After paying the same amount for your car insurance premiums, you were probably shocked when you got hit with a rate increase out of nowhere. After you scanned the bill for any incorrect charges or logical explanations, you noticed that the new premium amount was much higher than it was when you first signed on with your provider. So what happened?!
Unfortunately, this situation is all too common when it comes to car insurance. In fact, we know of 15 different reasons why your car insurance company decided to increase your premiums, and we'll be discussing each one of them in today's article.
1. More People are Driving
Most people are surprised to learn that insurance companies can increase your premiums each month even if the circumstances have nothing to do with you personally. Sound unfair? Here's how it works:
In an article published in Insurance Journal, GEICO admitted that their underwriting profits had declined by approximately $33 million as compared to the previous year's first quarter statements, so they decided to raise their rates to get back to the level of their former earnings.
GEICO isn't the only provider choosing to take this route. Allstate actually experienced an increase in profit (13% to be exact) and still decided to raise its auto insurance rates.
According to Allstate's Chief Executive Officer Tom Wilson, "There are more accidents now over the last couple of years than there have been because economic activity has gone up and more people are driving." The CEO continued with, "We and other people have been raising our rates to account for that."
Yes, you heard that correctly.
Your car insurance payments could have increased due to more drivers on the road, which is clearly something you have zero control over. Unfortunately, as silly as it sounds, it's 100% true. What's even worse is that it's not something you'll be able to fix. And the same goes for the next reason on our list.
2. You're Male
Your gender is another factor that you have zero control over, but still affects how much you're paying for car insurance each month. Before you go protesting about a gender bias, check out the statistics behind this reason:
"Women are less likely than men to get into a car accident," according to the National Association of Insurance Commissioners. This means your insurance company is spending less money on average on claims from female drivers.
Plus, men are "about 10% less likely to wear a seatbelt" so they're more likely to incur a life threatening or serious injury. If this unfortunate event does occur, your insurance company has a future filled with high medical bills, which is something they want no part of.
And if that wasn't enough, male drivers are much more likely to speed, drive under the influence, and own fast sports cars (which they often drive recklessly).
How to fix this: Undergoing a sex change is not worth the possible cost savings. Instead, you'll need to prove to your insurance company that you're not like typical male drivers. Keep your driving record squeaky clean. If you prove the statistics wrong, you'll have a higher chance of a rate decrease.
3. Your Credit Score
You may not think your credit score is a factor, but according to Consumer Reports, "A poor credit score could add $1,301 to [your] premium, on average."
Essentially, your insurance company wants to know how risky you are, so they check your credit score just like when a lender approves you for a credit card or auto loan. Except unlike an auto loan, insurance companies are really trying to gauge how likely you are to file a claim.
If you have a low credit score, insurance providers automatically assume that you're more likely to file a claim. They can raise your rates accordingly, even with a spotless driving record. Not exactly fair, right?
The article continues to say that insurance companies hand select as many as 30 elements out of a possible 130 to determine their own unique credit score. And each score may vary from one company to the next! So you really never know if you have "good credit" in the eyes of an insurance company.
The last interesting point to note from CR is that "California, Hawaii, and Massachusetts are the only states that prohibit insurers from using credit scores to set prices." This is certainly good news for those with not-so-perfect credit in those states.
Although it's not all sunshine and rainbows here: these states have to rely much more heavily on your driving record to determine how much you'll pay each month. This won't help if your driving record is worse than your credit history.
How to fix this: Keep your credit score as high as you can. To do this, make your payments on time every month and try to pay off your balances in full if you can. It's also a good idea to keep your balance low (versus maxing a card out). Only juggle a few cards at a time. Having too many credit cards could be a red flag to lenders that you're not managing your credit properly.
4. You Let Your Coverage Lapse
Forgot to send in last month's insurance payment? Did you lose your driver's license, or have it suspended?
Both of these behaviors are seen as risky in car insurance. If you make late payments a routine habit, your insurance company won't take this lightly and will cancel your coverage. Losing your license will also cause your insurance provider to drop you as soon as possible.
The problem is that these two instances cause what's known as a 'lapse in coverage' and that's not a good thing.
See, "Insurance companies look at your car insurance history as one method of determining your premium," according to DMV.org. Just like a lapse in employment, they'll wonder what happened during that time and may deem you as "high risk" as a result. This is a scarlet letter on your record, which is sure to cost you in the form of a rate increase.
How to fix this: If the missed payment is a one-time thing, your provider may give you a grace period of up to 25 days. Of course, you won't be able to make this a habit so take it as a lesson learned and don't repeat your mistakes.
In the case of your insurance company dropping you or going out of business themselves (i.e. the lapse was not in your control), it's important that you find a new provider and reinstate coverage as soon as possible.
Be aware that some states even impose fines for a lapse in coverage. You'll need to take care of these immediately if your state has them or you'll face a suspended license, which will make getting affordable coverage virtually impossible.
5. You Just Started Driving (Even as an Adult)
A lack of driving experience means higher risk, and your car insurance provider is all too familiar with this. That's why teenagers and newly licensed adult drivers face car insurance premiums that are much higher than those for someone who's been driving for over ten years.
Similar to the gender bias, it may seem unfair at first glance, but the statistics back up these reasons. According to DMV.org:
The rate of accident-related deaths per mile among 16 to 19-year-olds is 3 times higher than for drivers over 20
The rate of crash-related deaths per mile among drivers 16 and 17 years old is 2 times higher than it is for drivers 18 and 19 years old
These problems aren't just limited to teens. New drivers are more likely to speed, less likely to realize a dangerous situation is forming, more likely to tailgate, and less likely to wear their seatbelt. These are all risky red flags that will cost you more.
How to fix this: A clean driving record is a minimum, but you'll also want to attend a safe driving course, too (you can find the closest one to your home right here).
You can also opt for a car with additional safety features.
And if you're a student or the parent of one, you may be eligible for discounts for good grades if a 3.0 GPA (or B average) is maintained.
Finding the right provider can also make a difference in how much you pay to insure your new driver each month. Take advantage of our easy-to-use quote tool to find out if you're paying too much.
6. Driving Record
It should go without saying, but it's still worth mentioning: Racking up speeding tickets and accident charges are easily the fastest ways to ensure a rate increase.
It's not hard to understand this factor. If you're speeding, you're engaging in risky behavior that increases your chances of getting into an accident. And when you do get into an accident, you'll only pay a small premium while your insurance company has to shell out thousands of dollars to settle claims. If they have to pay out of pocket for your risky behavior, you can bet they'll recoup some of the costs by charging you a higher premium.
How to fix this: Again, keep your driving record spotless or be ready to pay more for car insurance each month. The choice is yours.
7. Your Spouse's Driving Record
When you get married, your car insurance rates can go one of two ways: they can increase or they can decrease.
If both you and your spouse have impeccable driving records, you'll experience a slight decrease in your premiums thanks to the fact that you're both less risky to insure and you'll be driving less.
On the flip side, if one of you (or both) have a few bad marks on your driving record, you're likely to pay a higher premium each month.
How to fix this: Adding your spouse to a multi-car policy is a smart move only if your spouse has a clean driving record. You'll both enjoy a slight discount for bundling.
However, if one of you has been collecting speeding tickets or is accident-prone, it may be more affordable to have separate policies and forgo the possible marital savings. Only you and your insurance provider can determine your best route here. Plus, this will depend on just how bad your driving records are.
8. How Often You Drive
Your car insurance rates can also be affected by how often you drive. So if your job requires you to travel often, or you get a new job with a longer commute, you may feel a rate increase each month.
The idea here is that the more you're on the road, the higher your chances are of getting into an accident. Because this increases your risk, your insurance company has to reduce its liabilities even if only slightly by charging a bit more for your coverage.
How to fix this: Changing jobs may not be an option, but opting for company car insurance coverage (instead of having to use your own), working from home some days, or carpooling with a co-worker are all great options. If you decide on one of these routes, be sure to let your insurance provider know that you're driving less. With usage-based policies, you'll be able to reduce your rate each month accordingly.
9. Where You Park
General door dings and nicks are inevitable no matter where you park. But if your car sits on a busy street where double parking is the norm, you're more likely to incur damages that are more serious than a simple door ding. We're talking side swipes and broken mirrors, which are way more costly to fix.
The same goes for parking in high-crime areas. If your car is at a higher risk for instances like theft, you'll be increasing your risks of having a claim so your insurance company will end up charging you more for coverage.
This may seem insignificant to you, but remember that your deductible is much smaller than the actual cost to fix damages or replace a stolen vehicle.
How to fix this: In the case of street parking, your best bet is to find a garage close by where you can keep your car protected from the hustle and bustle of the city. And if you absolutely must park on the street, try to get as close to the curb as possible (so you're not sticking out) and tuck your mirrors in each time you leave your vehicle.
If you're parking in a high-crime area, try to install or use extra safety features such as an alarm or steering wheel club to keep your car protected.
Now, if you fall within these two situations, understand that you may not be able to reduce your premiums each month even with these car protecting measures. The idea here is to reduce your risk of filing a claim due to damage or theft. If you end up filing a claim, your rates will increase even more, or worse, you could be dropped altogether if the problem persists.
10. Your Zip Code
Unfortunately, your zip code could also be affecting how much you shell out for car insurance each month.
States with higher uninsured drivers, or more drivers on the road in general (think: big cities versus rural suburbs), means the chances of being involved in an accident are much higher. And if you get in a wreck with someone who's not insured, for example, your insurance company will be stuck paying for all of the damages, whether it was your fault or not.
As of March 2, 2016, the following states had the highest car insurance premiums on average:
Another thing to consider with regards to your zip code is that, "52 percent of reported crashes occurred five miles or less from home and a whopping 77 percent occurred fifteen miles or less from home," according to Progressive.
So if the immediate radius of 5-15 miles around your home is a crowded city filled with parallel parking instead of nice empty parking lots, you're more likely to pay more for car insurance each month. After all, your insurance company will only see this as an increase in your risk for filing a claim, which is all they need to justify a higher rate.
How to fix this: This is one of those issues that can be hard to fix, especially when moving is not an option. Instead, you'll need to do your best to reduce your risks on your own in order to keep your driving record squeaky clean.
Despite the fact that you know the area well, keep your attention focused on the road whenever you're driving within 15 miles of your home (or any distance for that matter). Avoid parking on busy streets or in high-crime areas - stick to well-lit parking lots or garages with security.
As for the uninsured drivers, there's really not much you can do here but adopt a defensive (instead of aggressive) driving strategy to reduce your risks of being involved in an accident.
11. Education Level & Occupation
Insurance companies believe that having more education under your belt (think: Bachelor's degree, Master's, or Ph.D.) means you're less likely to be involved in an accident.
The same is true on the flip side: high school dropouts are put in a higher risk category with higher than average rates.
Here's the research to prove this. According to a New York Public Interest Survey, "A bank teller with a high school degree would pay on average 18% more than a bank executive with a college degree. A high school graduate who worked in retail could pay 41% more annually than that bank executive."
Essentially, "A person with lower income with a clean driving record might pay more than a person with a higher income with a poor driving record." Not exactly "fair", huh?
What you do for a living is also taken into consideration when it comes to determining how much you'll pay each month. If you're constantly on the road for work, your insurance company will assume that you're more likely to be involved in an accident, which means you'll pay a bit more than someone who works from home.
How to fix this: If you can muster up the energy to earn a higher degree, you'll see a slight cost savings for your effort. And if earning that degree is not on the table, you'll have to settle for higher insurance premiums each month.
The good news is that the next few tips on our list are all within your control of fixing, unlike some of the other items we've mentioned.
12. You Opted for a Low Deductible
By definition, your deductible "is the amount of money you have to pay toward repairs before your insurance covers the rest."
For most of us, having to shell out $1,000 for an accident can be a hard hit to our wallets, so many choose to elect a low deductible such as $500. Be cautioned though, if you choose this route, you'll be making up the difference in your monthly premiums (i.e. paying more each month).
How to fix this: If you're not accident prone or haven't had one in close to a decade, opting for that higher deductible is your best bet. That will reduce how much you pay each month.
However, if you've had a few accidents in the last five years, that higher deductible won't make sense and, unfortunately, you'll still be paying more in your premiums each month as a result.
13. You Elected the Highest Amount of Coverage
Another way you can save money on your monthly premium is by selecting the right amount of coverage.
If you're driving a car that's fairly old, you may not need the highest level of coverage since one accident could total the car for much less than you're covered for. Ideally, you want coverage that at least equals the total value of your car, but you may not need much more after that.
How to fix this: Be sure to review your policy to ensure that you're not paying too much in coverage. First, double check the current value of your car to see if it's completely covered and then decide how much additional coverage you need.
Certain states require low minimums when it comes to coverage, which may not be enough to cover you should a serious accident occur. Keep this in mind as you determine how much coverage you really need. If your state's minimums are unrealistic should an accident occur, you'll want to add a bit more coverage just to be safe.
14. Your Car's Horsepower
Your car's horsepower may seem like your personal preference, but your insurance provider cares just as much.
See, having a car with higher horsepower means you're more likely to drive fast. These cars also cost more to repair, which means it costs even more to insure. You'll find that the same model car, let's say a Toyota Camry for example, will have slightly different premiums for the four-cylinder versus the six-cylinder version.
How to fix this: Avoid cars with a V6 or V8 engine and ditch the sports cars altogether if you're worried that your wallet is taking a beating each month in car insurance premiums.
15. The Size of Your Car
In the same way that your car's horsepower matters to insurance providers, so does the size of your car.
According to Kelley Blue Book, "A large SUV could drive up the cost of your liability premium because of its potential to inflict a greater amount of damage on other cars."
How to fix this: If driving an SUV is a must, choose a mid-size one or opt for a minivan instead. These cars cost much less to insure and are considered "safer" in your insurance company's book.
As you can see, some of the factors on our list are easily fixable, while others (such as your gender) may not be. To guarantee the lowest car insurance premiums, keep your driving record clean, avoid parking on busy streets, and choose a safer vehicle instead of a larger or faster one.
If you're looking to reduce your car insurance payments each month, check out our handy quote tool to see if you're getting a fair price for the amount of coverage you need (or just getting ripped off).
All you have to do is input your zip code and answer a few easy questions to have an unbiased and competitive quote in minutes.