Are you under the impression that negotiating with your car insurance agent can lead to lower premiums? Or that having full coverage means your car is protected against all possible risks? It might surprise you to discover that these common beliefs, among others, do not align with reality. Understanding how auto insurance works and what factors actually impact your rates can help you avoid overpaying while ensuring you have adequate coverage. Let’s distinguish fact from fiction when it comes to your auto insurance coverage.
Myth 1: Minimum coverage is sufficient
Opting for only the minimum auto insurance required by your state may seem like a cost-effective choice, but it could end up costing you more in the long run. While it meets legal requirements, minimal coverage may fall short in scenarios involving significant damage or injuries. Personal injury attorney Ramzy Ladah warns that in the event of a serious accident, the minimum coverage may not cover all costs, leaving you responsible for additional expenses. The commonly mandated liability insurance of $25,000/$50,000/$25,000 breaks down as follows:
– $25,000/$50,000 for personal injury liability covers up to $25,000 per person and $50,000 per accident for bodily injuries incurred by others in an accident you cause.
– $25,000 in property damage liability assists in paying up to $25,000 per accident for property damage caused by you.
In addition to basic liability coverage, some states require additional protections like Personal Injury Protection (PIP), uninsured/underinsured motorist coverage, and medical payments coverage. Having only the minimum coverage could leave you financially vulnerable if you cause an accident with costs exceeding your limits, potentially leading to significant out-of-pocket expenses and legal risks.
To safeguard your assets from potential legal liabilities, it’s advisable to carry more than the minimum required insurance. Consider supplemental coverage such as umbrella insurance for added protection.
Once your auto coverage is exhausted, it is advisable to have a minimum of $100,000 of bodily injury protection per person and $300,000 per accident, along with $100,000 of property damage protection per accident.
A common misconception is that red cars are more expensive to insure, but this is not true. Insurance companies do not base rates on the color of your car, but rather on factors such as your driving history, mileage, and type of vehicle. For example, a red sedan and a blue one with identical specifications will be treated the same. Instead, insurers consider factors that impact risk and repair costs, such as the make and model of the vehicle, safety features, engine size, repair costs, and likelihood of theft. While car color does not directly affect insurance rates, dark-colored cars may be less visible in low-light conditions, potentially leading to more accidents and claims, which could impact premiums over time.
Additionally, the popularity and demand for specific car colors can affect market value, which in turn may impact insurance costs, especially for full coverage. Full coverage helps cover damages from accidents, theft, vandalism, or other incidents. If you are financing your vehicle, the cost of your car’s color might indirectly affect the price of protections like gap coverage, which covers the difference between your loan amount and the car’s value if it is totaled.
Contrary to the belief that car insurance is more expensive for seniors, aging does not automatically result in higher premiums. Mature drivers with a clean record often enjoy lower premiums due to their experience and lower-risk behavior. Factors affecting senior driver rates include driving record, annual mileage, completion of defensive driving courses, vehicle safety features, location, and parking arrangements. Progressive Insurance data shows that rates typically decrease for senior drivers with a proven track record.
The average auto insurance rates change significantly between the ages of 19 to 34, then stabilize or continue declining slightly until age 75. Here is how the average monthly rates change with age:
– 17 and under: $247.28
– 18: $271.92 (+10%)
– 19-20: $242.40 (-11%)
– 21-22: $215.04 (-11%)
– 23-24: $189.78 (-12%)
– 25-29: $168.86 (-11%)
– 30-34: $159.72 (-5%)
– 35-39: $156.13 (-2%)
– 40-44: $151.81 (-3%)
– 45-49: $151.6 (+10%)
– 50-54: $141.85 (-6%)
– 55-64: $128.60 (-9%)
– 65-74: $122.26 (-5%)
– 75 and older: $127.96 (+5%)
For senior drivers, rates reach their lowest point between ages 65 to 74, averaging $122.26 monthly. After 75, premiums start to increase again by about 5% to $127.96. This increase reflects higher accident risks and potentially more severe injuries among older drivers, as per CDC data.
To keep your auto insurance rates low, consider the following strategies:
– Taking defensive driving courses for a discount
– Maintaining a clean driving record
– Using telematics programs offering discounts for good driving habits
– Bundling auto insurance with home or other policies
– Shopping around for quotes every 6 to 12 months
There are additional ways for seniors and retirees to save on car insurance, such as looking for senior discounts or switching to insurers catering to specific groups like The Hartford for AARP members over 50 or USAA for veterans and individuals with military connections.
Modern vehicles with advanced safety features often qualify for insurance discounts. Cars equipped with automatic emergency braking, lane departure warnings, and adaptive cruise control not only enhance driving safety but can also reduce premiums with many insurers.
While you cannot negotiate your auto insurance rates directly with your provider, you can explore various discounts and bundles to save money and compare rates among different insurance companies. According to Michael Orefice of SmartFinancial Insurance, insurers offer varying rates and discounts, making it crucial to compare quotes and inquire about savings options.
Consumer Reports’ analysis of over 2 billion car insurance quotes revealed significant variations in average annual premiums among major insurers. The study found that new customers paid notably different rates based on their choice of insurer, even with identical driving profiles and coverage levels. Your credit score is among the core factors influencing your insurance premium, with some states prohibiting the use of credit scores to determine auto insurance rates.
According to a study by Consumer Reports, drivers with poor credit tend to pay $1,301 more per year than those with excellent credit scores. Simply having good credit instead of excellent credit can still lead to higher premiums ranging from $68 to $526 annually. While you may not be able to negotiate your insurance rate directly, you can impact the factors that determine it. One key factor is improving your credit score, as most insurers use this to calculate premiums. Additionally, don’t assume that staying loyal to one insurance company will result in better rates; shopping around every six months to a year can often uncover better deals. For example, the study found that 62% of customers who switched insurers in the past five years saved money, with an average yearly savings of $597 by switching from Progressive to USAA.
It’s important to understand how sharing your car with others can affect your insurance premium. Insurance typically follows the car, not the driver. Therefore, if someone borrowing your car is involved in an accident, your policy might need to step in first, even if it’s not your fault. This could result in increased rates at renewal time, especially after more serious accidents. It’s crucial to consider who you allow to drive your vehicle, especially younger or unfamiliar drivers. If someone regularly uses your car, it’s advisable to add them to your policy to avoid potential issues with claims or policy cancellation.
When it comes to car insurance, it’s essential to distinguish between collision and comprehensive coverage. Collision insurance covers repairs for your car after accidents with other vehicles or objects, while comprehensive coverage handles non-collision events such as theft, vandalism, weather damage, and falling objects. Having both types of coverage provides proper protection for your vehicle. However, there may be instances where you could consider dropping one or both coverages, such as when a car is not being driven for an extended period.
Consider dropping collision insurance while keeping comprehensive coverage in case of a fire, storm, or flood. Why are drivers under 25 charged higher insurance rates? Insurance companies typically charge higher rates for drivers under 25 based on statistical data showing that this age group has a significantly higher risk of accidents and insurance claims. Young drivers’ lack of experience behind the wheel, combined with data that shows they could be more likely to engage in risky driving behaviors like speeding or distracted driving, leads insurers to view them as higher-risk clients that require higher premiums to offset potential claims. Is it legal to base car insurance rates on gender? Yes, in most states it’s legal for insurance companies to consider gender when setting rates, though seven states prohibit this practice: California, Hawaii, Massachusetts, Michigan, Montana, North Carolina, and Pennsylvania. In states where it’s allowed, insurers can charge different rates based on statistical crash data showing certain gender and age groups have higher accident risks. A ValuePenguin study found that the price difference between men and women typically ranges from 7% higher for men at age 17 to 1% higher or less by age 32.
Sources:
– Global Automotive 2023 Color Popularity Report. Axalta. Accessed January 3, 2025.
– Average Car Insurance Rates by Age. Progressive. Accessed January 3, 2025.
– Distracted Driving Impact. Centers for Disease Control and Prevention (CDC). Accessed January 3, 2025.
– Car Insurance & Auto Insurance Special Report. Consumer Reports. Accessed January 3, 2025.
– How Gender Impacts Car Insurance Rates. ValuePenguin. Accessed January 3, 2025.
About the writer:
Yahia Barakah is a personal finance writer at AOL with over a decade of experience in finance and investing. As a certified educator in personal finance (CEPF), he combines his economics expertise with a passion for financial literacy to simplify complex retirement, banking, and credit topics. He loves empowering people to make informed financial decisions that improve their everyday and long-term wellness. Yahia’s expertise has been featured on FinanceBuzz, FX Empire, and EarnForex. Based in Florida, he balances his love for finance with freediving, hiking, and underwater photography. Article edited by Kelly Suzan Waggoner.
