Owning or leasing a vehicle can be one of the most exciting milestones on the road for many motorists, but it also comes with costs beyond the sticker price. One of the main expenses that could make you hit the brakes: your car insurance premium.
In fact, the latest Consumer Price Index (CPI) shows that auto insurance rates have increased by 10.3% over the past year. These are just the costs you have to bear for insuring your vehicle. The AAA 2021 Your Driving Costs study found that the average cost of owning and operating a 2021 model vehicle in 2021 was $9,666 when the vehicle is driven 15,000 miles per year. And the average cost of insurance for all vehicles was $1,342.
Your auto insurance premium is not set in stone and can be drastically higher or lower than someone else’s premium depending on a number of different factors that insurers use to determine the level of risk they are taking by extending a policy to you.
What factors determine your car insurance premium?
Your car insurance policy is an agreement between you and your insurance provider that says your insurer will cover the cost of any losses you may incur in an accident in exchange for a periodic premium. Your insurer assumes some risk if they decide to do business with you, so it’s important for them to review you and your driving history to determine how much they need to charge you to make you comfortable with that risk and cover your losses in the event that you make a claim.
A few personal stats they evaluate include your…
- drive recording
- credit history
- Make and model of your vehicle and mileage
- Your location
- Personal demographic information such as age and gender
5 reasons why your car insurance premium may increase
Your car insurance premium can change for a number of reasons, some of which may be under your control and others may be the result of the environment you are in. Once you know exactly why your premium has increased, you can create a game plan on how to decrease it.
- You have been in an accident or received a speeding ticket. Because your trip record plays a big part in your reward, you can expect negative grades to affect your reward. Insurers may consider you a risk driver if you’ve been involved in an accident, even if the accident wasn’t your fault. The good news is that many insurance companies only consider the last three to five years of your driving when calculating your rates, so a fender bender won’t affect your rate forever. And some insurers may offer accident forgiveness programs that give you some leeway and ensure your provider doesn’t increase your rate after your first accident.
- You live in an area where more claims occur: Even if you don’t file a claim, an increase in claims in your area could cause your rate to increase.
- Inflation: No wonder – when the cost of goods and services increases, it can even affect your car insurance. “It may feel random, but insurance companies can increase prices for inflation adjustments or when the company as a whole sees higher than expected loss rates across all drivers,” says Nestor Hugo Solari, co-founder and CEO of Sigo Seguros. an insurance technology company that provides affordable access to auto insurance for immigrants and working-class communities.
- You no longer have a discount: If you secured a lower rate when you first purchased your policy thanks to a discount, you might see your rate increase when that deal ends. Say you took advantage of an employee discount and changed jobs, or you got a safe driver discount and you’re involved in an accident.
- You have added a new driver to your policy: If you’ve added a new family member to your policy, your rate will likely increase due to the added risk of a second driver. The exact increase depends on their age and driving history.
This is how you save on your car insurance premium
So your rate has gone up and you’re looking for ways to lower your costs. How you do that? There are a few strategies you can try.
- Look for a new policy. If you’ve been with your insurer for a while, it might be time to go back out and request quotes from other insurers to see if you can get a lower rate. You should do this every few years as your personal and financial circumstances may have changed and this could drastically change your premium payment.
- Change your coverage level. You might consider reducing your coverage level, although this may only save you money in the short term. This has the most noticeable and immediate impact on your price, although it does [does mean] reduced coverage in the event of an accident,” says Solari.
- Consider a bundled policy: Some insurers will give you a discount if you buy more than one type of insurance policy from them, such as policy.
- Increase your deductible: By opting for a higher deductible on your car insurance, you can significantly reduce your premium costs. The trade-off is that you have to set aside enough money to pay for the higher deductible should you make a claim.
- Work on improving your credit score: Your credit rating is a key factor used by insurers to determine your rate. Regularly checking your credit report for errors and maintaining positive habits like making payments on time and having low balances can help you keep your score in good shape and get a better rate.
take that away
Your car insurance premium can increase for a number of reasons, not always due to your own actions. By regularly monitoring your bill, looking for discounts, practicing positive financial habits, and actively communicating with your provider to learn about savings opportunities, you can ensure your reward doesn’t stretch your budget too far.
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