Auto insurance protects motorists financially in case of accidents, theft, and property damage. When car owners have auto insurance, they don’t have to deal with the stressful process of negotiating with other parties. Insurance companies help them with vehicle towing, repairs, and management of damages to other drivers or pedestrians.
Because of its undeniable importance, buying auto insurance is required in most parts of the country. Only New Hampshire and Virginia don’t mandate drivers to buy auto insurance. Although most states have auto insurance laws, premiums vary.
States like North Carolina, according to amistadinsuranceservices.com, have one of the best auto insurance laws in the country. Vermont, Ohio, and Idaho also have low auto insurance premiums. States with high auto insurance rates include Michigan, Louisiana, and Florida.
If you’re a new car owner, you might find yourself asking why some premiums are more expensive than others. Here’s why:
1. No-Fault Insurance System
In a no-fault car insurance system, policyholders are required to purchase first-party benefits known as personal injury protection (PIP). Because of the PIP, insurance companies should compensate their policyholders for the cost of injuries, even the minor ones, regardless of who is at fault during the accident.
Many states with high premium insurance rates employ this kind of system. But, Michigan’s no-fault system is a little different. In Michigan, which currently has the highest rate ($2,239 annual premium), the PIP coverage guarantees unlimited lifetime medical benefits to injured parties. The unlimited benefits make the risk greater for insurers, pushing them to charge high insurance costs.
2. Highly Urbanized Community
In heavily urbanized communities such as New York City and the state of Florida, there are higher chances of auto accidents, theft, and vandalism. This means there can be more insurance claims. It’s no surprise that many insurance companies in the area are pressured to charge higher rates, in anticipation of higher claim volume.
3. High Number of Uninsured Drivers
When many drivers are uninsured, it pushes up the auto insurance cost for everyone in the area. Insured motorists protect themselves from the cost of an auto accident by paying extra to their policy for coverage of an uninsured or underinsured motorist.
4. Population Density
Even population density can cause auto insurance rates to increase. When there are more people in one place, the assumption is that there are also more drivers. Additionally, when traffic is crammed in a small space with many people, there are higher chances of property damage, bodily injuries, and other liabilities. This may lead to more insurance claims, which may result in higher auto insurance premiums.
5. Extreme Weather
In the event of severe weather conditions, such as a hurricane, blizzard, or flood, insurance rates are affected. The premiums may shoot up, though not immediately. These events increase the risk of auto accidents and the number of insurance claims. To make up for these claims, auto insurance companies raise their premiums.
Auto insurance rates vary from state to state, and even from driver to driver. If you want to keep up with current auto insurance premiums in your area, you have to assess the conditions of the community, the number of insured drivers, and your residence’s auto insurance laws.