Most people prefer the cheapest car insurance to the best coverage

To determine the cheapest car insurance options in the United States, WalletHub, a personal finance website, compared 206,974 quotes in 47 states. WalletHub used up to 36 different driver profiles based on measurements in nine key categories, ranging from age and gender to driving record and marital status. The researchers analyzed this data to find the cheapest states for car insurance and the cheapest car insurance companies overall and for certain demographics.

Top 10 states for cheap car insurance
1.	Iowa		6.	Montana
2.	Vermont		7.	New Hampshire
3.	Nebraska		8.	West Virginia
4.	Wyoming		9.	North Dakota
5.	South Dakota		10.	Maine

 

Top 10 cheap car insurance companies
1.	Progressive		6.	Liberty Mutual
2.	GEICO		7.	AllState
3.	State Farm		8.	Safeco
4.	The General		9.	Travelers
5.	Nationwide		10.	Farmers

The average adult in the United States spends about $1,000 per year on auto insurance, according to the Bureau of Labor Statistics – more than they spend on fruits and vegetables, alcoholic beverages, or pets. In a survey, 64 million people, or 26 percent of Americans, say they want the cheapest car insurance rather than the best coverage, according to WalletHub’s survey.

A lack of financial literacy also plays a major role in consumers’ attitudes toward car insurance. About 54 million people, 22 percent of U.S. adults, say they don’t understand their car insurance, WalletHub found.

Coverage confusion

Part of the reason for consumers’ uncertainty about auto insurance is a large number of insurance companies and unfamiliar regulations that make up the car insurance process.

“There are at least three areas in which the state in which you live will affect how much you pay for coverage,” Douglas Heller, an insurance specialist with the Consumer Federation of America, said.

Minimum coverage levels vary by state. Secondly, each state monitors or regulates the insurance industry in different ways.

“In some states, such as California, before raising or changing rates and pricing practices, insurance companies must go through a strict review by government actuaries, lawyers, and other experts to ensure that rates are not inadequate, excessive, or unfairly discriminatory,” Heller said.

The third reason, he said, is that “states may have different risk profiles related to things like traffic density, road conditions and maintenance, weather, and the cost of injury care and car repair.”

These things, along with a general lack of understanding among consumers, may also explain why 63 million people, or 25 percent of U.S. adults, have never switched car insurance policies.

Unfair pricing?

One trend in car insurance pricing that many consumers understand is pricing. People with no credit pay an average of 67 percent more for car insurance than people with excellent credit. Two-thirds of WalletHub survey respondents believe it’s unfair for credit scores to affect car insurance costs. However, most drivers don’t realize just how much of an impact their credit actually has.

Only three states – California, Hawaii, and Massachusetts – ban the use of credit data in car insurance pricing. However, all should, said J. Robert Hunter, director of insurance for the Consumer Federation of America. “It is a proxy for prohibited classes of income and race.” Credit data could be seen as a way for car insurance companies to discriminate against certain groups.

Car insurance companies also factor gender and geography into policy pricing. And while the intent may be similar, consumer opinions on the practices aren’t consistent. More than seven in 10 people say it’s unfair to include gender in car insurance pricing, according to WalletHub’s survey, but there’s a 50-50 split on the use of zip codes.

 A “combination of road design, speed limits, enforcement, and driving culture,” make it riskier to drive in some cities and states than others, said Robert L. Rabin, a professor at Stanford Law School. Differences in weather patterns, traffic congestion, and crime are key underlying factors, too.

“Often variations in rates are impacted by geography (and more specifically) weather,” said Susan A. Shaheen, co-director of the Transportation Sustainability Research Center at the University of California, Berkeley. Other considerations include city size and traffic congestion, which can contribute to higher accident rates; demographic variations in the average age of a metro area, younger drivers and older adults can be associated with higher levels of risk; and crime, both vehicle theft, and vandalism.

In the survey, 14 percent of people say they wouldn’t buy car insurance if it wasn’t legally required. Millennials are two times more likely than boomers to have that opinion.

Next steps for drivers and legislators

While most consumers don’t know much about their auto insurance, new tools are making it easier to find the best car insurance at the lowest price.

Here are steps that consumers can take to save on car insurance:

1. Take advantage of discounts. You may be able to get discounts if you’re a veteran, get paperless statements, have a good driving record, bundle policies, are a student, or have an anti-theft system.
    
2. Build good credit. People with no credit pay 67 percent more than people with excellent credit on average.
    
3. Drive safely. Safe drivers with no history of accidents, tickets, or arrests can get cheaper rates.
    
4. Look locally. Some car insurance companies only serve customers in certain regions or states. These local insurers may provide lower rates but are often overlooked. Make sure to include them in your comparison.
    
5. Choose a higher deductible. An insurer may lower your monthly rates in return for a lower deductible – the amount you have to pay when you make a claim. This approach may be good for infrequent drivers.
    
6. Consider pay-per-mile plans. You don’t always have to pay a set amount per month. There are plans based on how much you drive. The insurance company will place a device in your car that tracks your mileage. It may also track things such as your speed and braking, which could affect your rates positively if you’re a safe driver and negatively if you’re not.

State and local governments also need to take action to improve car insurance options for their constituents.

“The most significant thing a state can do to promote inexpensive car insurance is required insurance companies to justify their rates and practices before they can raise prices on drivers,” said Heller. “Since governments require that drivers purchase auto insurance, the government has a special obligation to ensure that prices are fair and affordable.”

For more information, see WalletHub’s “2019 Cheap Car Insurance Report” and “Car Insurance Survey.”

Comments

[Tom Sightings]

We just picked State Farm over Liberty Mutual, because we got a little more coverage for a little less money; plus the agent seemed a little more knowledgeable. But here's the problem with insurance: You never now how good it is unless and until you have a claim. So, fingers crossed.

[Rita]

Hi Tom,

It's a difficult decision to make. I've had State Farm for years, and it's been difficult to work with on the couple of occasions that I needed it. I don't change because it's hard to know if you'll get a better or worse company.

Rita