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Most of us aren’t very happy when the time comes to renew the insurance policy for the vehicle. A lot of drivers feel like they are overpaying for insurance and think that the insurance companies are to blame. However, when asked about the reason for the policies being so expensive very few of them state that their cars have an influence on the rates they are charged with. And that’s a very common and serious mistake. The car you drive is the main factor that influences your insurance rates. Even the type of car you choose to purchase has a significant impact on your premium. So how insurance rates change depending on the car type?

Insurance companies use a set of factors that determine the risk of insuring a particular vehicle. The most important risk-determining factors are repair costs, theft rates, damage to other vehicles, injuries to passengers and likelihood of accident. By using these parameters it’s really easy to classify mot common vehicle types with respect to car insurance costs:

Small vehicles

Smaller cars are usually cheaper, get stolen very rarely and aren’t expensive to repair. However, when it comes to safety and injuries to the passengers smaller cars get very risky. Simple law of physics make it evident that if a small and large vehicle collide the damage to the small vehicle will be greater due to difference in mass. So despite the lower price you are likely to get higher insurance rates with this type of vehicles. (more…)

During WWII, Washington lawmakers were sometimes persuaded to pass laws that, by modern standards, seem strange. Take the McCarran-Ferguson Act as an example. When Washington should have been protecting the ideals of capitalism and enforcing the principle of free markets, the lawmakers decided to create state-by-state monopolies for the insurance industry. Here’s what they did. If you want a book today, you can buy discounted books from a major internet retailer. Even when you add in the shipping, it can still be cheaper than buying at your neighborhood bookstore. But if you want to buy an insurance policy, you can only do so from an insurance company registered in your state. No company can sell a policy across state lines. The result is a lack of real competition. The insurance companies pick and choose where to set up, aiming to keep the number of companies low in each state. This allows them to parallel each others’ prices and maintain their profitability. Now you’re all saying this is not significant. Except the difference in premium rates between states can be great.

Let’s start at the bottom of the league table with a low-population state like Maine. In a recent survey, researchers got quotes for a “standard” man for all the major makes and models of vehicles. He was aged 40, drove an average distance to and from work, and accepted a $500 deductible. Averaging out the quotes allowed our average man to buy a policy for less than $1,000 per year in low-population and/or rural states. Why so low? When you only have a small number of drivers, even at peak commuting times, the risk of accidents is low. Indeed, the drivers in some of these states take a real pride in their skills and the statistics show significantly lower rates of claim for damage or injury. Now switch to a state with large population centers and heavy commuting traffic at peak times. Here the risk of accidents is far higher. Worse, because the standard of living is often higher, people are likely to be driving more expensive vehicles which cost more to repair. So our same standard man will be paying about $2,500 in Michigan. (more…)