When you review your bills each month, you may ask yourself, why is my car insurance premium so high? Many people wonder what they're getting for all that money they're putting in each month and if they even need car insurance at all.
AAA is here to help you better understand the importance of auto insurance, what it covers, the options available to you, and how you can lower your auto insurance rates. Knowing what you want from your insurance policy and the different factors that can raise and lower your auto insurance can help you find the plan that works best for you.
What Is Auto Insurance?
Auto insurance exists to give vehicle owners and operators peace of mind. Insurance is a financial agreement between you and your provider to protect you in the event of a car accident, and depending on your coverage, theft, vandalism and natural disasters, as well.
In an auto insurance agreement, you pay a fixed amount to your insurance company every month. This recurring payment is called your premium. Some plans allow you to pay your premium on an annual or biannual basis instead.
In return, the insurance company will reimburse you for expenses you incur in the event of a car accident. Requesting payment from your insurance company is called filing a claim. Before your insurance company pays for your claim, you must pay a fixed amount of the cost yourself. This amount is called your deductible and is agreed upon at the beginning of your policy. Auto insurance covers both the cost of personal injury and property damage. However, the circumstances your insurance will cover and the maximum amount they'll pay depends on your policy.
The benefits of auto insurance are clear. Instead of risking a surprise bill of thousands of dollars after an accident, you pay a predictable monthly fee for your insurance provider to cover that risk for you. The average claim for a car accident in 2019 was $18,417 for bodily injury liability and $4,525 for property damage liability. Having an insurance policy with a company you can trust provides economic security.
What Does Auto Insurance Cover?
When purchasing a new insurance policy or updating your existing policy, it's essential to understand what is and isn't covered. Different insurance policies cover different circumstances and dollar amounts. Generally speaking, insurance policies with higher premiums and deductibles will offer more comprehensive coverage up to a higher dollar amount.
The minimum types and amount of coverage required will vary depending on the state you live in. You can always choose to add additional benefits beyond the minimum state requirements. Your insurance policy can include multiple components that apply to different circumstances and cover different dollar amounts. Most states require both property damage liability and bodily injury liability. Other popular types of auto insurance are collision insurance, medical payment coverage, comprehensive coverage and uninsured and underinsured driver protection.
Liability Insurance
Liability insurance covers expenses related to damages caused if you're found at fault for an accident. Liability coverage includes bodily injury liability and property damage liability. Bodily injury liability covers expenses such as medical care and rehabilitation for those injured in an auto accident, while property damage liability covers the repair or replacement costs of property damaged in the accident.
Collision Insurance
Collision insurance covers the cost of damage to your vehicle regardless of who's at fault. This insurance covers repair or replacement costs for damage caused by collision with another vehicle or objects like poles or trees. Collision coverage doesn't cover medical expenses or other costs incurred as the result of bodily injury.
Medical Payments Coverage
Medical payments coverage, sometimes referred to as personal injury protection (PIP), covers the medical expenses of you or your passengers regardless of who's at fault for the accident. This coverage can include ambulance fees, doctor visits, hospital stays and surgery costs.
Comprehensive Coverage
Comprehensive insurance covers potential costs caused by events out of your control other than accidents. Comprehensive coverage includes protection against theft, vandalism and natural disasters such as a tree falling on your car. Comprehensive coverage could be a valuable addition to your policy if you live in an area with high crime rates or extreme weather conditions.
Uninsured and Underinsured Driver Insurance
Uninsured and underinsured driver insurance exists to protect you when a person with inadequate insurance hits your vehicle. Even though liability coverage is required by law, some drivers fail to carry insurance, or the insurance they have isn't enough to cover the total costs of an accident. This form of insurance can cover the medical expenses of you or your passengers if the person who hit you is incapable of doing so. This form of insurance doesn't cover property damage.
Other Coverage Options
Many other auto coverage options are available, including gap insurance, rental reimbursement and accidental death benefits. Gap insurance covers the difference between the value of your car and what you owe on your car loan. Rental reimbursement covers the cost of renting a vehicle while yours is receiving repairs after an accident. Accidental death benefits offer an additional level of life insurance if the policyholder were to die in a car accident. Your insurance company might provide other types of advantages not listed here. Speak with a AAA insurance agent to learn more about the options available to you.
Do You Need Auto Insurance?
All states require financial responsibility in the event of a car accident, and most states explicitly require auto insurance. The amount and types of insurance you need to carry varies by state. Some states only require liability coverage, while others require uninsured motorist coverage and personal injury protection.
Pennsylvania requires medical benefits coverage, bodily injury liability, property damage liability and limited or full tort coverage. Driving without the proper insurance is punishable with fines and the suspension of your vehicle registration and driving licenses. Additionally, those without coverage will encounter the exorbitant costs of being involved in an accident without financial protection.
Even if you're not legally required to carry auto insurance, it's a wise investment to protect yourself from unexpected property damage or medical bills. Few people can cover the costs of a severe accident out of pocket. Having an insurance company you can trust means having one less thing to worry about in the stressful event of a collision. The types and amount of coverage you want will depend on the value of your car, how well you can afford an unexpected bill and if you're the primary provider for your household.
We recommend underinsured motorist insurance to cover you and your family if a driver with insufficient insurance to cover your medical costs hits you. If you haven't fully paid off your vehicle, you may want gap coverage to pay the difference between the value of your car and the balance on your auto loan. If you drive an older, less valuable vehicle, you may find collision coverage unnecessary. If you have children or other family members dependent on you, you might want to consider lost work coverage or accidental death benefits.
How Are Auto Insurance Rates Determined?
Insurance companies determine your auto insurance rates in a process called underwriting. Underwriting is when a representative of the insurance company asks you a series of questions to decide if they'll accept you as a policyholder and an appropriate rate to charge. This process is complex, including much more than the amount of coverage required. Numerous factors including age, gender, driving behavior and even credit history can affect insurance costs.
- Driving record: Ultimately, insurance rates are based on perceived risks. If the insurance company believes you're more likely than average to be in an accident or that the cost of you being in an accident will be higher than average, they'll charge you a higher rate to offset that risk. Because past behavior is a strong indicator of future behavior, having a history of accidents or traffic violations such as speeding can negatively impact your insurance rates in the form of higher premiums.
- Claim history: If you file an insurance claim, particularly if it's for a major at-fault accident or repeated accidents over a short period, your insurance company may increase the cost of your premiums. This price hike is the result of the increased financial risk demonstrated. A client who has filed claims in the past is considered more likely to file additional claims in the future.
- Age: Younger drivers tend to have higher accident rates than adults. If you're under 25 or have a teen driver on your policy, you'll likely pay more for coverage.
- Gender: Men and women have different frequencies and severity of auto accidents on average. This difference in accident rates is most pronounced for younger drivers. Male drivers under 30 may pay higher rates than their female counterparts.
- Mileage: More time spent on the road means more opportunities for an accident. Drivers who average more miles driven per week will likely see higher premiums to reflect this.
- ZIP code: Insurance companies consider where you live when determining an appropriate rate to charge. If you live in a neighborhood with high rates of theft, vandalism or auto accidents, you'll likely pay more for car insurance.
- Type of vehicle: The type of car you drive can affect your rates. Vehicles that have higher accident rates or higher average payouts per accident cost more to insure. Luxury cars and sports cars tend to be more expensive to insure than other models.
- Credit: Some companies use your credit history in the underwriting process. Underwriters reference credit history as an indicator of your insurance risk. A lower credit score can often mean higher premiums. While companies may consider your credit information during the initial underwriting process, insurers can only use credit information at renewal in Pennsylvania if it results in a lower rate.
What Can You Do to Lower Your Auto Insurance Premium?
Lowering your monthly insurance premium by even a small amount can lead to hundreds of dollars per year, potentially thousands of dollars over the life of your car. Thankfully, there are many ways to lower your insurance rate.
1. Drive Safely
The safer you drive, the lower your risk of being in an accident. Low-risk drivers with fewer accidents and traffic violations are cheaper to insure and enjoy lower rates. Safe driving habits include obeying speed limits and other traffic laws and breaking and accelerating more gradually. The term "defensive driving" is one to stick by to ensure you drive safely.
2. Invest in an "Insurance-Friendly" Car
Next time you're looking to purchase a new vehicle, consider how it might impact your insurance. Luxury vehicles will have higher costs for collision coverage than more economical cars to offset the increased cost of repairs. Sports cars are also more expensive to insure because they tend to be involved in accidents more frequently than other vehicles. Conversely, if you get a car with additional accident avoidance and theft prevention features, you may be eligible for discounts on your insurance.
If you're in the market for a new car, ask your insurance provider for a list of all the safety features they discount. It could save you money in the long run.
3. Take a Defensive Driving Course
Taking a defensive driving course can help lower your insurance premium. Not only will it help you become a better driver, which can lower your premiums over time, many insurance companies, including AAA, offer discounts for completing a safe driving class.
In addition to offering a discount for completing a defensive driving course, AAA hosts defensive driving courses online and in person. If you have points on your driver's license, many states will accept AAA's defensive driving course for point reduction, which could help lower your rates even further. AAA also offers driving courses designed for student drivers.
4. Seek Additional Discounts
Insurance companies offer a surprising number and variety of discounts you may not be aware of. Bundling your home and auto insurance is a commonly provided discount. Other standard discounts besides the ones discussed above include discounts for paperless billing or multi-car discounts. Some insurance companies like AAA offer less common discounts such as good student discounts for students performing well academically. Speak with your insurance agent to see what discounts you qualify for that you're currently missing out on.
5. Shop Around
Auto insurance is a surprisingly competitive market. If you start asking other providers for quotes, you might be shocked to learn that the 10-year loyalty discount offered by your current provider isn't as good as you thought. Many insurance companies raise the premiums of their existing members over time. Request quotes from multiple companies to see if your current provider is overcharging you. AAA offers free quotes for auto insurance.
6. Improve Your Credit Score
There are numerous benefits of improving your credit score. One benefit you might not have expected is lowering your insurance premiums. Insurance companies view a poor credit score as a predictor of risky behavior and will often charge higher rates because of it. Substantially improving your credit score demonstrates responsibility and could save you money the next time you shop around for insurance. If you recently paid off a large amount of debt, it may be a good time to ask for a quote.
7. Increase Your Deductible
A deductible is the amount of money you agree to pay out of pocket before your insurance company begins covering the cost for a claim. Increasing your annual deductible can significantly lower your monthly premium, often by a large enough amount to cover the increased deductible in the event of an accident. If you're a safe driver who hasn't filed a claim in the last few years, this choice could be an excellent money-saving trade-off.
8. Assess Your Coverage Needs
If you drive an older vehicle that's valued for less than your collision coverage, you might be overpaying for insurance. In most cases, your insurance company won't pay for repairs or replacement costs that exceed the vehicle's value. If the value of your vehicle is sufficiently low, you may feel comfortable declining collision coverage altogether. Removing unnecessary coverage options can help lower your monthly payments.
Auto Insurance With AAA
We've been in the car insurance business for over 100 years, so we have the expertise to get you where you're going. AAA also offers more than roadside assistance, providing additional coverage options to meet your needs, including collision, comprehensive coverage, rental reimbursement and gap insurance. AAA prides itself on its exceptional customer service and has local agents in locations across Pennsylvania to help serve you better.
AAA members are eligible for discounts and rewards to help you save money while getting the coverage you need. For example, you can save when you bundle your home and auto insurance through us. You also gain access to special deals with a range of hotels, restaurants and car service providers who partner with AAA. Get a AAA Auto Insurance quote for free today.
AAA, More Than Roadside Service
In addition to our legendary emergency roadside assistance program, AAA offers all forms of insurance plans and a comprehensive discount program for members. As the experts in all things travel, AAA can help you plan your next family trip or your next vehicle purchase. Check out our blog, where we cover a variety of topics ranging from travel advice, car maintenance and money-saving tips!
