1. The singles penalty for policyholders
You might not expect that your insurance premiums would be based on relationship status, or that you could be paying more based on whether you’re single or married. After all, since when did getting married make you a better driver? Yet a recent analysis found that drivers in their 20s who are single will, on average, pay 21% more for an identical policy than drivers in their 20s who are married. This is based on the general assumption that married people will drive more safely and be more likely to have children. But this broad grouping unfairly raises the rates for many unmarried — but good — drivers.
Drivers under the age of 25 are hit hard by elevated insurance premiums due to their greater likelihood of being involved in accidents. A driver aged 21 can expect to pay about 50% more in premiums yearly than they would if they were 25, even if they’re just as safe on the road. Yes, it’s true that younger drivers are at higher risk of an accident — but a risk isn’t a certainty, and many young adults drive safely and without incident. Unfortunately, these good drivers face years of paying excess premiums through no fault of their own, rather than a rate that accurately matches their own low risk on the road.
3. Paying a premium — for your neighbors’ driving habits
Imagine moving to a new home — and discovering that your car insurance premiums have inexplicably doubled along the way. Variations in how much you pay for insurance aren’t just a matter of how you drive, but also where you live. Drivers in Louisiana, for instance, will pay 33% more on their premiums than the national average — conversely, Wisconsin drivers pay 28% less. This can vary by county, city and even zip code, and can mean you spend hundreds of dollars more on insurance every year regardless of your own driving habits.
4. Yearly rate hikes, whether you need one or not
Plenty of drivers are keen to keep their driving record clean and look for any way to save money on their premiums. Yet even if you’re a good driver, traditional insurance companies often raise your rates anyway. From 2015 to 2016, the average car insurance premium increased by 5%, while inflation grew by under 1%. (In one case, the state of Georgia saw Allstate customers have their rates hiked by an astonishing 25%!) Drivers who don’t shop around for better deals will likely find themselves paying more for the same coverage year after year, regardless of their accident and driving history.
Did you know that you could be paying for insurance coverage that you don’t actually need? Some drivers, such as those with older vehicles that have been paid off, may find it’s a better choice to go without the collision coverage that’s included in many policies. This can save a great deal on monthly premiums. Most agents, though, are compensated not only on selling you a policy, but also on how big of a policy..
6. Saving the earth — but not saving on premiums
More and more drivers are opting for fully electric vehicles such as the Tesla Model S, Chevrolet Spark, Volkswagen Golf, and more. However, this environmentally-friendly and sustainable choice can come with a heavy penalty from insurance carriers in the form of much higher premiums. For instance, premiums for an electric-only Chevy Spark are 19% higher than those for the gas-only Chevy Spark. These rate hikes are attributed to the greater expense of replacing an electric car and the complexity of specialized repairs — but the end result is that drivers making smart choices often still end up paying more for it, even as electric cars may be safer than gas-powered vehicles in many ways.
7. Good driving record? Poor (or average) credit still means higher rates
Even if your driving record is excellent, your insurance company could still be charging your more if your credit score is low, or even “good” but not the best. Customers with good credit scores could still pay $68 to even $526 more per year compared to those whose credit was considered the best. And those with poor credit are hit especially hard, potentially paying $1,301 more in premiums yearly. Only a few states prohibit insurance carriers from basing premiums on credit score.
8. Lack of affordable options for low-income drivers
For low-income drivers, every extra dollar quickly adds up. Studies of insurance premiums have found that in many large urban areas, major car insurance carriers do not offer any policies that cost $500 or less yearly, putting this outside the range of many low-income safe drivers who need to drive to work and school. The consequences are dire, as many of these otherwise safe drivers simply choose to continue driving without any insurance — a serious legal and financial risk facing those who can least afford it.
9. Raising your rates — just because they can
Would you believe that your current carrier would overcharge you for no reason other than that they simply choose to? Some carriers do exactly that. Using various data models, insurance companies may guess whether you’re a customer who isn’t going to shop around and is likely to tolerate having your rates raised — and then they do it. This tricky tactic, ironically called “price optimization”, is only prohibited in a handful of states.
10. Charging good drivers for bad drivers
Perhaps the most fundamental problem with traditional car insurance is the grouping of individual drivers into much larger “risk pools” — broad categories based on a number of personal and demographic factors, where all drivers are charged similar premiums. But within a given risk pool, there’s still a spectrum of very good drivers and very bad drivers, and while they’re all paying about the same rate, good drivers are subsidizing the expenses incurred by bad drivers’ accidents.
Is there a better option? Yes — and it’s here today. Root’s app understands how well you drive so you get a price based on your actual driving behavior. When we use better data, you get better rates. Download the Root app on iTunes today and see what you can save.