One of the biggest frustrations that can happen when you're trying to save money is the sudden event that drives expenses up. Maybe it's a rent increase. Maybe it's an illness or a new bill you didn't anticipate. Whatever it is, it can be a truly irritating setback, especially when you're trying to work your way out of debt or save up for something special.
One such item that no one relishes having to deal with: a big spike in your car insurance rates. Cars are a necessity for many of us, and with owning an automobile comes the necessity of owning insurance. Vehicle ownership is one of those unavoidable expenses that can cut deeply into your budget, which is why it's important not to let carelessness send your premiums through the roof.
With that in mind, here are some of the most common things that can send your insurance premiums soaring.
Getting a traffic ticket
This one is probably familiar to anyone who's gotten a traffic ticket: your insurance premiums probably took a jump not long after. Car insurance companies determine premiums based on how risky they feel a driver is and getting a ticket means (to them) more likelihood of being in a crash. This is especially true if you get a ticket for a moving violation, such as running a red light or speeding. This tells insurers that you have a tendency to engage in risky driving, and thus are more likely to cost them money.
Causing an accident
What has an even bigger impact than demonstrating to insurers you're likely to be in a collision? Actually being in one. If the collision was your fault, the insurer will have to pay out for the accident, and will bump you right into a higher risk category — and the more damage done in the collision, the higher those premiums will go. There are some cases in which an insurer might give accident forgiveness, but in general, you'll only get that one time (if at all). So don't count on it!
Having (or being) a teen driver
Fair or not, the size of your insurance premiums is heavily impacted by being young. Teenagers are expected to act recklessly, be more impulsive, and have less experience than their adult counterparts. Statistically, they're more likely to be involved in traffic accidents than older age groups — which means they're significantly more expensive to insure. For example, if you're a teen driver in an already expensive state like Maryland, you’re going to find the rates for the 16 to 19 age bracket to be downright astronomical. Sadly, there's not much getting around it.
Living in a dangerous neighborhood
Moving to (or living in) a dangerous neighborhood raises your risk of your car being stolen or broken into. It also means a higher risk of a collision. Higher premiums can even come from living in an area that's prone to certain disasters and weather conditions, such as fire, flood, earthquake, hailstorms, and any number of other phenomena. This, in turn, translates to more risk for insurers, which is passed on to you in the form of higher premiums.
Having an expensive vehicle
More expensive vehicles are a higher risk for insurers for a few reasons: they're a bigger target for thieves, they can cost more in terms of parts and labor to repair, and (depending on the make and model) they can be considered a higher accident risk. High-performance cars can be tricky to drive, especially for drivers who aren't experienced enough to handle them.
Having a low credit score
Your credit score can impact all aspects of your financial life, from buying a home to getting a loan to, yes, paying for your car insurance. This goes right back to how insurers assess the risk factor of a policyholder, and unfortunately, a low credit score is a sign of being a greater financial risk.
Submitting a comprehensive insurance claim
If a tree falls on your car, a hailstorm cracks your windshield, or some other event damages your vehicle, you're perfectly within your rights to file a claim if you have comprehensive coverage on your vehicle. Most of the time, this won't necessarily impact your premiums. But some companies have taken to hiking insurance rates on policyholders who've filed multiple comprehensive claims, or even claims over a certain dollar amount. Fair or not, that's just how it goes sometimes.
How to Help Keep Your Rates Down
While some of these items might be unavoidable and happen through no fault of your own, you aren't entirely at the mercy of chance when it comes to managing your car insurance rates. There are some steps you can take to try to lower your rates, such as:
- Ask your insurer about discounts for safe driving, low mileage driving, student discounts, and more.
- Take a defensive driving course.
- Agree to have a telematics device installed on your car to monitor your driving habits.
Shop around and compare insurance rates.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
