One expense you have control of in ways you never thought


What do you spend most of your money on? For most people, their two biggest expenses are their home and car(s). If you remember the post comparing expenses in 1913 to 2012, you might recall the three things that Mr. Average spent most of his “raise” on were:

  • Housing (36 percent of the raise)
  • Income taxes (28 percent), and
  • Transportation (24 percent)

A majority of the increase in transportation has, arguably, to do with that wonderful instrument of freedom — the automobile.

The choices we make

Our spectrum of choice in cars is, of course, wider than a mile. Egotistas spend big on the latest model of the coolest car. Hollywood celebrities once flaunted their beblinged Cadillac Escalades at the annual Oscar ceremony. That was before the 2002 recession. When that hit, it suddenly wasn't cool any more to be seen piloting a behemoth slurping down rivers of Mother Earth's precious resources. That's when the curtain went up on the eco-friendly Toyota Prius, which Cameron Diaz and other stars rode to the 2003 big event in their sipply little Priuses. Overnight, saving the planet with the Prius became California Cool.

That was then.

The top 1 percent, as we saw a few weeks ago, figured out a way to ensure that a full 95 percent of the wealth increase from this economic recovery gets channeled into their pockets. With that, concern for saving the planet went the way of Uggs for boys, and now the wheels of choice for gliding down Rodeo Drive has become a Range Rover, starting at $85,000 (new, of course).

While an egotista's main concern is how to bling up a new Range Rover, the other end of the spectrum is occupied by frugalistas sporting boring robust-o-cars destined for at least ten more faithful years of service. Those road warriors are inevitably at least 20 years old, scored on Craigslist for $500 from people with more money than savings concern.

Most of us find ourselves somewhere in the middle of the bulge of the ever-present bell curve, seeking to save while driving something a tad less extreme. That includes the mythical Mr. Average, the darling of all statisticians and bloggers.

So what does Mr. Average spend to keep his or her car on the road? The three biggest car expenses are depreciation, fuel, and car insurance. How does Mr. Average try to save on these items? Buy a cheaper car, is the usual answer.

Not for insurance. You would think you would save on auto insurance with an economical Toyota Corolla, which would be cheaper to insure than, say, a Chevy Tahoe, which is approximately twice the cost. You would be wrong. In an actual comparative pricing study I did for another blog post, I discovered that insuring the more expensive Tahoe is actually cheaper in total dollars than insuring the economical Corolla (new, as well as used).

Comparing gas mileage and depreciation is relatively easy. Getting a handle on car insurance costs for Mr. Average, however, is not.

You see, car insurance is greatly affected by “other” factors than by your choice of vehicle. According to Insurance.com, there are four basic factors insurance companies use to set your rates, and the actual vehicle is only third on that list.

The biggest factor setting your auto insurance rate is you — or, to be more specific, how insurance companies see you. You are bound to hate some and love some of these distinctions, but they're driven by hard data, collected and analyzed by geeks at their computers.

Who you are

Age: If you're under 25, your car insurance rates will be higher. Over 25, it depends. It drops until you become seriously interested in Depends, at which time your car insurance rates will start to climb again.

Along with age, insurance companies look at how many years you've been driving. Statistics prove that people who have driven longer file fewer claims. For that reason, it usually pays to keep your driver's license current, even if you live somewhere like New York City or Chicago, where you many times don't even need to own a car or drive. (Of course, you may need to have a driver's license in America to write checks or buy stuff with plastic. Foreigners sometimes have a hard time figuring out how being able to pass a driving test qualifies you to write checks, but that's a different story.)

Gender: Women pay less because:

  • They drive less
  • They get in fewer accidents
  • They get fewer speeding tickets
  • They get fewer DUI convictions
  • They buy safer cars

Please note: that's not a personal judgment. Insurance companies agree that that's what the numbers say.

Zip Code: Where you live affects your rates, because the frequency of “risk events” varies greatly from neighborhood to neighborhood. These risk events include vandalism, theft of cars and/or contents, and fraudulent claims. Again, these are not Mark Cuban types of assessments; they're conclusions drawn from statistical data. For this reason, it's not uncommon for two identical people living just a few miles apart to have a difference of as much as 50 percent in their auto insurance rates.

So, if you're considering moving, it might be a good idea to find out what the difference will be in your car insurance. You can get quotes from esurance, Progressive, or other online insurance providers — or you can fill out a single form at Insurance.com and get free online quotes from a bunch of insurance companies any time you want to compare rates. (It's pretty slick, but I digress.)

In general, it's cheaper to insure cars in rural areas, because they have less crime, less traffic, and fewer accidents.

Credit History: You might not think paying your credit card bill late would increase your car insurance, but you would be mistaken. According to an insurance broker friend of mine, statistics show that people with bad credit file claims something like 40 percent more frequently than those with good credit. If you want to look into this, here's an article about how and why your credit history affects your car insurance premiums.

Occupation: Again, statistics rule when it comes to insurance. Occupations like scientist, pilot, or actor/artist show lower claims and, therefore, have lower car insurance rates, generally speaking. Why? I want to say nobody really knows, but I'm sure somebody does. The most common explanation I've heard is that those occupations require attention to detail and being meticulous. In other words, those people are careful. That's in contrast to occupations with high auto insurance rates, such as lawyers, business executives, judges and doctors. Apparently, the reason for that is the stress level that comes with jobs like those. (They say the rate for doctors isn't much lower than for teens.) Real estate brokers also pay more because they have to drive more.

Marital Status: Did you know married people get into fewer accidents than their unmarried counterparts? Insurance companies do, and that's why they offer married people lower rates. In addition, insuring two cars with the same company usually will get you an additional multi-policy discount, much like the next criterion.

Homeownership: Insurance companies generally charge less for homeowners because they're regarded as more stable. By itself, that's not a significant factor, but the discount you get from combining your home and car insurance is.

The rest

The other basic factors determining your auto insurance rates are:

  • Your driving record (accidents, tickets, etc.) and claims history
  • The coverage you're looking for (pretty obvious)
  • Your vehicle

The impact of your vehicle selection is not obvious, so it's not simply that a more expensive car will carry a higher insurance premium. In fact, as pointed out above, a Tahoe costs less to insure than a Corolla.

Chances are that if you're concerned with getting rich slowly, you will have a good (or at least improving) credit record, and you'll be on the positive side of many of the variables listed above. But now you know exactly how those factors can lead to savings on your auto insurance, the third largest expense of car ownership.

How have you gone about lowering your car insurance premiums?

More about...Credit, Insurance, Transportation

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Beth
Beth
6 years ago

Interesting post, but I’m not sure what most people can do with this information? Most of us aren’t going to make major life decisions like get married, switch careers or move just to save on auto insurance. It seems rates go up every year too 🙁 Most of these factors I can’t easily change, but one thing I do at least once a year is make sure I’ve got the best rate. I get quotes from other companies and talk to my broker. I bundle my auto and renter’s insurance as well. I have yet to actually get a better… Read more »

Vanessa
Vanessa
6 years ago

“You are bound to hate some and love some of these distinctions, but they’re driven by hard data, collected and analyzed by geeks at their computers.” A quote comes to mind about correlation and causation…how does that go again? The fact is that all insurance companies look for any reason charge the maximum rate while providing the least level of coverage. I’m sure they’d LOVE to base rates on ethnicity, religious affiliation and medical history and could probably concoct all sorts of data to justify their claims. Fortunately we have laws against that sort of thing, for now. I have… Read more »

imelda
imelda
6 years ago
Reply to  Vanessa

Is correlation vs causation ever relevant when it comes to insurance? Actuarial calculations are about statistics and managing averages, not trying to find explanations for things.

Brian@ Debt Discipline
[email protected] Debt Discipline
6 years ago

Car insurance is not a budget item I’ve really looked at and tried to trim cost on. We use a reliable company. My wife was in a accident a few years back and required on going medical care. I want an insurance that is going to cover these things. Soon to have teen-age drivers as well, so if I have to pay a few extra dollars a month for good coverage I’ll find another cost to cut in my budget.

J Burne
J Burne
6 years ago

It may be more than “just a few dollars”. After sticking with the same insurance company for many years I spent a few minutes getting quotes, and was able to cut my annual premium by over 40% (FORTY PERCENT!). Customer service with the new company is just as good.

Another Beth
Another Beth
6 years ago

I am the same way. My insurance company has been wonderful and more than worth their weight in gold. I could probably save a few bucks using another company, but why? It would never occur to me to trim my insurance bill as a way to save money because it’s just not worth it to me.

Nick
Nick
6 years ago

When we moved from the City to a neighbouring town our insurance rate dropped from $1500/yr to $1040/yr. That was almost completely because of property crime, which is an issue in the city (also too many cars). I think insurance rates are one of those things that we cannot control except at key moments. We can control our credit rating, we can certainly control how much we drive and how carefully. And when we move to a new home, we can and should take into account the effect a potential new location will have on our car (and home) insurance… Read more »

Jen From Boston
Jen From Boston
6 years ago

One thing I checked before deciding on which car to buy was the high theft list. If you own one of those cars you’ll get a surcharge on your insurance, and that list includes many popular Hondas and Toyotas.

El Nerdo
El Nerdo
6 years ago

If you buy one of those uncommon, noticeable cars (I used to have one) you might more than make up for the additional theft insurance with astronomical repair costs.

E.g.

$120 oil change, with the special tool nobody else has
$700 windshields
$1600 tires
$3000 suspension work

etc.

Jen From Boston
Jen From Boston
6 years ago
Reply to  El Nerdo

Oh, but the high theft list also includes the fancier, uncommon cars 😛 So you can get DOUBLE hit!

I ended up buying a moderately priced Chevy that was not on the high theft list.

Joy from California
Joy from California
6 years ago

Thank you for the thoughtful post. I usually only buy a car every 10 years; long periods of time with no car payments make a BIG difference in building networth. Most recently, I have “adopted” an old 1981 Mercedes 300TD wagon with 214K miles as these diesel engines can go 500K. It is an incredibly solid car and gets good mileage – 24 combined/30 freeway. It was meant to be a 2nd car to haul things from the nursery but I am thinking about getting rid of my other car . . . will see. One small suggestion, when talking… Read more »

Jennifer B
Jennifer B
6 years ago

Usually writers use phrases like this when they do not have the facts to back up their statement.

So in general, yes, we know that rates are higher for the young and the old. But just what constitutes “old” – did anyone try to call a few insurance companies to find out? Methinks the answer is “no”, hence the pithy statement about Depends….

Alex
Alex
6 years ago

My car insurance saving tips; drive a cheap car, drive safely, drive less, and self insure. If you only buy the required liability insurance and forget comprehensive and collision that is a huge decrease in premium. My medical expenses in the case of a crash I cause or an uninsured driver are covered by my medical insurance, and if the other driver has the required insurance that will cover it if they caused the accident. Buying a new 5-10k car if I was in accident not caused by an insured driver it would suck, but I could afford it. If… Read more »

Steve
Steve
6 years ago

Insurance company assessments of zip code are complete BS in my opinion. I used to live in a ‘high risk’ area and as such paid what I deemed a fair price for insurance. I then moved to a more affluent area, keeping my same car (10-15yo thing, not worth much), but my premium increased because now I was living in a zip code where the median car value was much higher, it had nothing to do with the value of MY car. I promptly cancelled my policy and found another company to deal with. The only thing I’ve found that… Read more »

Tina
Tina
6 years ago

With 2 teen drivers, I can tell you some ways to cut some of the costs of auto insurance. Increase deductible amounts and keep deductible funds available in case of accident Make your child take Drivers ED or 50 hours on road to lower rate. Good report cards also bring the fees down. We have rule with our teens. We will cover auto insurance as long as they don’t get into an “at fault accident or traffic violation”. If they do, then they have to pay the difference if the rates increase. Certain companies have higher rates no matter what.… Read more »

Hilde
Hilde
6 years ago

In Germany, the insurance premium also depends on the car you are driving. It seems that e.g. with a BMW you are more likely to drive too fast or aggressively than with a Volkswagen Polo and so the probability for accidents is higher – and so is the insurance premium.

Brenton
Brenton
6 years ago

“Of course, you need to have a driver’s license in America to write checks or buy stuff with plastic. Foreigners have a hard time figuring out how being able to pass a driving test qualifies you to write checks, but that’s a different story.” No. Good lord… do at least a modicum of research before posting. You can get a non-driving ID card from the state. It looks very similar to a driver’s license, but is nothing more than an identification card. My grandmother moved here from england and never learned to drive, but had an ID card to do… Read more »

imelda
imelda
6 years ago
Reply to  Brenton

Yup, that’s what I came here to say. That is quite a serious error!!

And probably worth editing the original post to correct it. Hint hint, mods.

Linda Vergon
6 years ago
Reply to  imelda

It’s been changed to reflect that you may be required to present your driver’s license to make a purchase. Even if it’s not a requirement of the state, some proprietors may still operate in that fashion.

Good catch, Imelda and Brenton.

Ramblin' Ma'am
Ramblin' Ma'am
6 years ago
Reply to  Linda Vergon

I still don’t think that’s accurate. They may require a government-issued ID, but I can’t think of any situation where ONLY a driver’s license will do (except for driving, of course!)

Jennifer B
Jennifer B
6 years ago
Reply to  Linda Vergon

Nope, you cannot be required to provide a driver’s license to pay by check or credit card. They might require “government ID”, but that would include a passport, passport card, state issued ID card (i.e. the non-driving driver’s license), or military ID.

The statement is still just plain wrong.

imelda
imelda
6 years ago
Reply to  Linda Vergon

You should just look it up… a non-driver’s state ID looks *exactly* like a driver’s license, and can be used exactly like a driver’s license, for everything but driving. The only difference is that it says “non-driver’s ID” at the top.

LMoot
LMoot
6 years ago
Reply to  Brenton

Add me to the chorus that there is no state in America that requires an individual to pass a driving test in order to do anything other than driving or anything to do with driving (such as renting a car). Even if there are any private entities that require a drivers license for non-driving related business (which they should be reported to the BBB, or in the case of a handicapped person who can’t drive, the dept of lab or for not complying with ADA regs) it would be so rare that it’s not even worth mentioning and the post… Read more »

Jen From Boston
Jen From Boston
6 years ago
Reply to  Brenton

This could vary by state and by retailer/store. A store security person was told me, “Writing checks is a privilege, not a right,” so each store can set its own policies (unless, of course, state law has strict guidelines). I used to work for Sears in the 90’s, first in MD and then in CT. In MD we not only required a driver’s license, but we had to write the person’s hair color, eye color, height and weight (from the DL) on the check. This was because of the way arrest warrants were issued in MD – they needed a… Read more »

Ramblin' Ma'am
Ramblin' Ma'am
6 years ago

Jen: “In CT we didnt’ have to write down a description of the person on the check, but we didn’t take state IDs. You had to have a drivers license. It had something to do with the way the state issued the IDs at the time. That’s probably changed since then. But, it’s an example of how a state ID card might not necessarily be as good as a drivers license.” I live in Boston too, and some liquor stores do not take the non-driver IDs. Apparently they are easier to forge than a driver’s license. But you don’t need… Read more »

Jen From Boston
Jen From Boston
6 years ago
Reply to  Ramblin' Ma'am

“…but I don’t think there are any times when ONLY a DL will do.”

True. At Sears we’d also accept military ID, and I suppose passports. I never saw anyone use a passport while working at Sears. And reading back through the comments I see that people were objecting to the implication that you must have a DL. I read them as saying that a state ID is just as good, so I just wanted to point that sometimes it isn’t.

Jen From Boston
Jen From Boston
6 years ago
Reply to  Brenton

And, I forgot to add, requiring photo ID when using a credit card varies, and is at the discretion of the store unless prohibited by law. In MA I’ve never had to show photo ID for a credit card purchase, but when I was in CA for a few months I did. I was probably shopping in an area where there was a problem with credit card fraud, so the stores required photo ID.

Dave Lalonde
Dave Lalonde
6 years ago

Unfortunately, I don’t think I have control on the fact that I am a male so there goes that chance of being able to pay less as a woman. Coming from my auto financing background, I believe you got all the points. This really is a great post! But another thing people could consider for cheaper auto insurance are Association Discounts such as AARP, university alumni, or active/retired military. You can definitely utilize these if it pertains to you.

Jason
Jason
6 years ago

Some states require insurance companies to file their rates and rating methods. You can look these up on the state’s websites and go through the rating yourself to make sure you are getting all the discounts you qualify for. This is how Progressive shows you the rates for their competitors.

Rob
Rob
6 years ago

The biggest thing in your immediate control is shopping. Different insurance companies will charge wildly different rates for the exact same person.

When shopping btw, make your effective date more than one week later than the date you get a quote. That’s a quick way to potentially save a few bucks.

Also, if you’re an excellent driver and don’t really drive that much, sign up for one of those driver tracking devices. You could score yourself a huge discount and, for now, don’t run the risk of getting surcharged.

No Nonsense Landlord
No Nonsense Landlord
6 years ago

If you are a renter, and have great credit, you have your choice of housing. You could get free work out rooms, larger apartments, etc. because you have a choice.

When you have a low score, you go to where they will take you. And likely pay more, for a substandard apartment.

I have about about this on my blog

http://www.nononsenselandlord.com/2014/03/risk-of-tenants-with-low-credit-score-explained/

J Burn
J Burn
6 years ago

Drivers over about 50 years old can often get an insurance discount for taking an AARP-approved Mature Driver class (I get 5% off – a small but helpful amount). The AARP website lists local classes all over the country, and you don’t even need to be a member. (And arguably more important than the discount is what you actually learn or re-learn in the class)

Meghan
Meghan
6 years ago

My 07 Corolla costs more to insure than my 07 BMW did. Part of the reason is because I had over 11k in hail damage that I was rated for (thanks government employer for making me park outside and then not covering the damage at the airport) and then I backed in to my tenants’s car. You have to wait until 3 years have passed before it’s really worth it to shop for insurance. I’m getting close, thankfully!

Dan Heath
Dan Heath
6 years ago

The author has forgotten a much simpler way to save on transport and that is simple not having a car. I understand this article is probably written with US readers in mind and that having a car is near essential for some but if you don’t need one, get rid of the gas guzzler. I gave up driving nearly 2 years ago and have not only saved a lot in money. Initially journeys up to 10 miles were by bicycle and above that I used buses and trains. Now my threshold is 30 miles, I’m fitter, I don’t have to… Read more »

Jason @ Spa
Jason @ Spa
6 years ago

Just to flip the trend I am seeing with my friends is combine housing and transportation expenses and rely on public transport.

This concept means sometimes it pay off in the long run by buying or renting in the center of the city/near work/favorite hang out area. This way you can avoid the transportation cost all together. Essentially cut that 24% portion of expense down. The trade off is that you are likely to pay a higher housing cost but also save a lot of travel time.

Rosa
Rosa
6 years ago
Reply to  Jason @ Spa

even when public transit isn’t your favorite option, living near work & other things can allow a family to be a one-car family instead of a multi-car family. I live in a nice Midwestern city and have a fairly expensive cargo bike (for kid-hauling) that was still a lot cheaper than even a cheap second car – and costs about $100 in shop maintenance a year. No insurance except the homeowner’s insurance we already had, and my husband’s road bike cost the same as a few month’s car insurance. Some families we know get by with one car and the… Read more »

car insurance philadelphia pa
car insurance philadelphia pa
6 years ago

Makes sense. Before getting a car insurance, you should definitely get more than one rate quote before you commit. It would be nice to evaluate insurance costs first before buying your car because car model can certainly impact the price of your insurance. Don’t forget to ask for discounts. I’m sure most companies are offering one. If you get one, then you should avoid lapses in coverage since it would disqualify you from receiving discounts. Great read!

Matt
Matt
6 years ago

Having an emergency fund gave me a lot more flexibility with insurance – particularly regarding my deductible. I know a high deductible sounds like a bad thing, but if you view insurance as a way to protect you from a catastrophic cost, and you would be able to handle a $1000 or $2000 hit if the worst happened, then it might make sense to raise your deductible where you can. I raised the deductible on my homeowners and auto insurance policies, and saved over $100/year. Depending on the value of your car (and if you’ve paid it off), it may… Read more »

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