Car's affordable, why isn't the insurance?
By Prakash
Gandhi • Bankrate.com
Just because a car is inexpensive doesn't mean it's
cheap to insure. Nor are the higher-priced cars always the most
expensive to insure. But if you're concerned about high insurance
rates, avoid the temptation to splurge on that new $33,000 Honda
S2000 convertible. And don't think you'll beat the high cost of
auto insurance with an inexpensive car -- that little Volkswagen
GTI listed at $22,000 will cost almost as much for insurance as
its big brother, the Passat, which costs almost twice as much.
All have the dubious distinction of being among the
most expensive 2004 models to insure, according to a study by Runzheimer
International, a Rochester, Wis., consulting firm which reviewed
insurance costs on vehicles priced under $40,000 to come up with
10 of the most costly to insure. The firm looked at the insurance
rates in three groupings: single men over 30, married men 25 or
older and women 20 years of age and older -- all with clean driving
records living in a city with an average number of claims.
At the opposite end of the spectrum, the 2004 Chevrolet
Aveo and the 2004 Chevrolet Colorado placed among the cheapest 2004
models to insure.
David Friedlen, director of new product development,
business vehicle services at Runzheimer, says the main factor in
insurance pricing is not the cost of the car but its claims history.
"They may be vehicles that are stolen a
lot, or they are in a lot of accidents or the costs of repairs are
high," says Friedlen. "Repair costs are getting more and
more expensive. You would think a less expensive vehicle would be
cheaper to insure, but that's not necessarily the case.
"You can buy a less expensive vehicle, but if
you're in an accident, it may cost $10,000 to repair it because
it has a lot of safety features. It may be costlier to insure than
a more expensive vehicle. In fact, when you're buying a vehicle,
you should consider not just the purchase price, but the cost of
insurance, maintenance and the gas mileage it gives."
What drives rates?
More than 10 million U.S. households will buy a new vehicle this
year. But even though consumers spend a lot of time searching for
the right car, few pause to think about insurance costs -- which
could be a lot more than people realize. "If you can't afford
the insurance, then you can't afford the car," says Jeanne
Salvatore, a spokeswoman for the Insurance Information Institute.
Insurance premiums are based on:
- Sticker price: The
more a car costs, the more it costs to replace if it's totaled
or stolen.
- Repair costs: They're
rising at nearly double the overall rate of inflation, say experts.
"Vehicles have air bags and so much other new technology,
they are much more expensive to repair," says Don
Griffin, assistant vice president of the Property Casualty Insurers
Association of America. And Robert Hartwig, senior vice
president and chief economist with the Insurance Information Institute,
says it costs more to repair cars, particularly following accidents
involving sport utility vehicles. "Unfortunately, while drivers
today are filing fewer claims, those that are filed cost more,"
he adds. Additionally, repair costs are rising two to three times
the rate of inflation in some states.
- Theft and fraud patterns:
Cars that get stolen a lot are generally more expensive
to insure. Certain cars and models are favorites among car thieves,
because of a variety of reasons such as market demands in foreign
countries and interchangeability of parts. The Honda Accord and
Toyota Camry are normally cited as the most frequently stolen
cars. Residents of certain cities with high theft rates also get
hit with higher premiums. Also, ever-increasing insurance fraud
contributes to higher insurance costs, especially in states such
as New York, Massachusetts and Florida.
- Model year, weight and
vehicle type: Vehicles with more horsepower tend to have
higher premiums. Sports cars, high-performance vehicles and luxury
cars have the highest insurance losses for vehicle damage while
the smaller, lighter vehicles generally have higher death rates.
Passenger vans and station wagons have the lowest insurance losses
for vehicle damage. SUVs and trucks have the advantage of sustaining
generally less damage when in a collision with a smaller car,
but simultaneously cause more damage to the other car and show
greater liability claims.
- Driver demographics:
Where you live, your age, gender, driving record and even your
credit history affect premiums. "Ultimately, nothing drives
up the price of insurance like a bad road rap sheet. If you have
a good, clean driving record, you'll pay less for insurance than
if you have lots of accidents or get a lot of speeding tickets,"
says Salvatore.
- Technological progress:
American drivers are willing to pay dearly for new bells and whistles
in the latest models, but generally don't factor in the effect
of all those doodads on their insurance premiums. "Vehicles
have airbags and so much other new technology, which means that
when you have an accident the cost of repairs increases,"
says Griffin.
Each year, there are more than 2 million car accidents
involving injuries. Typical costs for treating an auto accident
victim range from $6,000 to $9,000, but can easily run into tens
of thousands of dollars.
This year, insurers will pay between $15 billion and
$20 billion in medical claims, says the Insurance Information Institute's
Hartwig. Higher costs for hospitalization and pharmaceuticals and
other factors are also to blame.
The good news is that the cost of auto insurance is
expected to rise by only 3.5 percent in 2004, the smallest increase
in four years. Fewer auto accidents due to better drivers and safer
cars and a crackdown on fraud and abuse are behind the trend. The
average cost for auto insurance nationwide for 2004 is estimated
at $871, an increase of only $29 per vehicle from last year. Still,
rising costs for medical care, vehicle repairs and skyrocketing
jury awards remain a concern.
See also: Cars under $40,000: Most
expensive to insure; least
expensive to insure.
Prakash Gandhi is a freelance
writer based in Florida.
See also:
Plus: 10
most-expensive (affordable) cars to insure
And: 10
least-expensive cars to insure
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