What is the Average Cost of Car Insurance?

By Jessica Bosari
After 13 years in personal and commercial insurance, Jessica Bosari now writes about personal finance, car insurance, risk management and related topics. Since 2008, she has been simplifying complex ideas through engaging articles for her readers.

What is the Average Cost of Car InsuranceHow much you pay or car insurance depends heavily on where you live. The laws in your state govern how much insurance companies can charge you, and some states do a better job than others at controlling costs. A look at the average cost of car insurance by state can help you see whether you’re overpaying.

Statistics on the Cost of Car Insurance

The Insurance Information Institute collects information on the cost of car insurance by state. The most recent numbers show that you’ll pay the most for car insurance in New Jersey and the least in Idaho. But the numbers aren’t as simple as one might hope. The study covers what people spend on average for car insurance, lumping together those that carry the minimum amount required in the state with those who carry added coverage like comprehensive and collision. Still, the numbers deliver some important insights.

First, the rate of increase in car insurance premiums has spiked in recent years. The cost of car insurance went up 3.6 percent between 2011 and 2012, and a shocking 4.2 percent from 2012 to 2013, based on data from the Bureau of Labor Statistics AS used in its consumer price index. And with all the talk of rising health care costs, you might be surprised to learn that the cost of medical care only rose 2.5 percent between 2012 and 2013. Clearly, the increase in car insurance rates is out of control. Increases in car insurance rates outpace the cost of living by 6.5 percent.

The specific amount people pay for car insurance varies greatly by state. As a nation, we paid an average of $797 for car insurance in 2012. Those living in the 10 most expensive states pay between $956 and $1184, while those in the cheapest states pay between $535 and $620. The east coast is heavily represented in the most expensive states, while the Midwest dominates the cheapest states.

Affordability Concerns

A report from the Consumer Federation of America outlines the seriousness of the insurance cost problem, especially for low and moderate-income Americans. The report uses some older statistics from 2009 through 2012, but we can still see where the biggest problems lie. Because the U.S. public transportation system is fractured and intermittent, we rely on cars to make a living. And because car insurance is mandatory in almost every state, we can’t get to work if we can’t afford car insurance.

Rates in low-income areas tend to be higher because of larger populations and traffic congestion. The natural result is that, relatively, low and moderate-income Americans pay disproportionately high car insurance rates compared to other income groups. The only state doing something about that is California, where low-income drivers who demonstrate good driving records qualify for special decreased car insurance rates.

The Poverty Rate and Car Insurance Rates

It’s interesting to look at the ConsumerFed numbers with respect to poverty rates and compare them to car insurance costs. If we look at both these factors together, we get a new and more meaningful picture of where car insurance is most and least affordable.

Using this method, we can then look at places like Alaska to see if its poorest residents can afford car insurance. For cost, the state is among the most expensive, ranking 39th in a list of least to most expensive car insurance. But it has the third lowest poverty rate.

Compare that to New York, where both poverty and car insurance expenses are high. That state is ranked 48th for car insurance cost (3rd highest rates) and 50th for poverty, making it one of the worst places to live when it comes to car insurance affordability. Louisiana doesn’t fare much better, ranked 49th for both high cost of car insurance and high poverty rates. Nebraska may be the most affordable state for car insurance, with the lowest poverty rate in the nation and the eighth cheapest car insurance.

Help on the Way?

According to PropertyCasualty360, a Federal Insurance Office (FIO) investigation is underway to study the affordability of car insurance for Americans. You might recall that the FIO is a new government agency, established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Office’s goal is to define how to make car insurance affordable. The FIO hopes to understand why insurance industry experts say car insurance is getting more affordable while consumer groups claim it’s getting more expensive. Defining affordability will certainly be a challenge. The FIO has to figure out whether the cost should be a percentage of income, if it should be low enough to make sure families don’t have to skimp on other necessities, or whether the number of low-income families buying car insurance should be the determining factor. In the meantime, the best most consumers can do is drive safely, take advantage of every car insurance discount available, and compare rates often to make sure they’re getting the best price.