The average cost for car insurance in the United States is $1,588 annually, according to the Insurance Information Institute.
And while people enjoy the anticipation of buying a newer vehicle, they aren’t necessarily thinking about the cost of car insurance. However, car insurance costs vary based on factors, such as the year and model of the vehicle purchased and your driving record.
An easy-to-use car insurance estimator can give you an idea about the insurance cost for any vehicle you plan to buy. However, understanding your budget is another important step in affording auto insurance.
- Get a few car insurance quotes to set a budgeting baseline.
- Anticipate car insurance premium increases when you renew your policy.
- Check with your insurance company or agent before making a new or used vehicle purchase.
How much should I budget for car insurance?
You can determine how much you have to spend on car insurance (and your car) by setting up a household budget, getting an estimate for your car insurance coverage and checking with your auto insurance agent or company before buying a new car.
Keep on reading to find out more about car insurance budgeting.
1. Establish a household budget
Creating a household budget is a fantastic way to understand your expenses, how much you spend on regular expenditures and what remains for other interests. One way to establish a household budget is to create categories for essential and non-essential items.
- Essential expenses are all of the expenses that you have to be able to live, such as having a place to live, food to eat, running water and health and auto insurance.
- Non-essential expenses are the items that you don’t need in your life but may want for your personal time or pleasure. Examples include trendy shoes, a new cell phone, manicures, home cleaning services and more.
You can establish a household budget by starting with your monthly take-home pay. From there, determine the percentage of your salary that goes toward essential items like housing, transportation, food, insurance, utilities and healthcare.
Housing can be the most expensive due to the large amount needed for rent or a mortgage. Transportation also can be an expensive outlay affected by whether you have a car loan and how much you spend on gas to commute to work (if you do). Auto insurance also can be a sizable portion of your expenses based on how new your vehicle is, what kind of driving record you have and what area you live in.
After the percentages you spend on essential expenses are determined, you can see what percentage of your salary remains for non-essentials, such as nights out, sporting events, concerts and new clothes.
Many experts suggest a 50-30-20 budget, where the first number represents the percentage of your income that goes toward essential expenses, the second number represents the percentage applied to non-essential expenses and the third number (yes, there’s a third!) is the percentage put into savings and investments.
Of course, you can tweak these percentages to fit your own income and wants.
2. Estimate your car insurance payment
If you’re wondering how much you should budget for car insurance, you are asking an important question. Insurance is just one component of your essential expenditures, but there are numerous factors that positively or negatively affect your car insurance premiums.
One factor, as an example, is your age. Typically, the younger you are, the more expensive your insurance will be since you have less driving experience than people who are older than you. With driving experience, your risk decreases because you know more about the road.
“Insurance premiums are calculated based on several rating factors such as age, gender location, and vehicle information,” says Lauren McKenzie, an insurance broker/agent with A Plus Insurance.
“The cost for insurance will vary among each vehicle for reasons like the vehicle’s age, the cost to repair/replace the vehicle, theft statistics in that area for certain vehicles, etc.”
Other factors that affect insurance quotes include:
- Car make and model
- Coverage types
- Driving record
- Credit score (in most states)
- Marital status
Of course, a quote is just an estimate of how much an insurance policy will cost. Whether you choose to get a quote online or from an agent, be aware that this information helps to determine which discounts you are eligible for. Once this information has been made available, a driver’s violation history and VIN report is run.
“Once those reports come back, the premium will either stay the same, increase slightly if there are undisclosed violations or any damage to the vehicle, and in some cases, the insurance quote may even go down after running the reports based on good credit and insurance history,” McKenzie says.
You can compare quotes from company to company and agent to agent. As a consumer, you may have the option to pay your premium monthly on a semi-annual or annual basis. Usually, there is a discount for paying for your policy in full, but that may not be as affordable for you as paying smaller amounts month-to-month.
The Car Insurance Estimator on carinsurance.com provides you with three coverage level options that are based on your personal information that you enter in five quick steps.
3. Contact your insurer before any vehicle purchases
Buying a new vehicle, whether fresh off the lot or used, can affect your auto insurance rates. Generally speaking, the newer the vehicle, the more expensive the premiums. This is because newer vehicles are more expensive to replace if they are stolen and repairs for newer vehicles are more costly.
Before purchasing the vehicle on your dream list, check in with your insurance provider to see how it will affect your rates – particularly if it is a newer model or newer year than the vehicle you currently drive.
“When thinking about purchasing a new vehicle, it would be wise for drivers to get an idea of what they should expect to pay for that new vehicle, whether it increases or decreases their premium,” McKenzie says.
“If the new-quoted cost to add a vehicle is significantly higher, there could be an underlying reason such as lack of safety/theft features, causing a higher premium and drivers may want to reconsider the type of vehicle they purchase.”
It also can be helpful to understand what the most expensive and cheapest cars to insure are in 2023 before you begin your vehicle shopping. The three most expensive cars to insure in 2023 include the Maserati Quattroporte, the BMW M8 Competition and the Porsche Panamera.
Sporty vehicles with fast engines, luxury names and top-of-the-line finishes have the highest insurance rates.
If you’re shopping for a vehicle made by Subaru, Toyota, Mazda or Hyundai, you could be in the market for some of the cheapest car insurance rates. CarInsurance.com’s 2023 report shows that the cheapest cars to insure are the Subaru Forester 2.5l Wilderness, Hyundai Venue SE and the Honda CR-V LX.
Top 20 cheapest cars to insure in 2023
4. Anticipate car insurance premium increases at your next renewal
Another factor to consider when purchasing a car is the fact that car insurance rates are on the rise. According to the U.S. Bureau of Labor Statistics, the price of car insurance from May 2022 to May 2023 increased by 17.%. This is much more significant than other consumer categories, like recreation, which increased by 4.5% and new vehicles, which increased by 4.7%.
The rising car insurance costs tie into increases in the Consumer Price Index (CPI-U), which was at 4% in the past 12 months leading up to May 2023, according to the U.S. Bureau of Labor Statistics. Rising costs of auto insurance are also associated with:
- Higher replacement part costs
- Increasing labor costs
- Lack of skilled workers
- Supply chain issues
Other factors may include accidents that are more severe, higher driving rates and severe weather like hurricanes and wildfires. You may want to anticipate a cost in your premium at the renewal period and ensure that you have the funds to cover any increases.
“Over the past few months, a lot of companies have increased insurance premiums, some upwards to 20% increase on renewing policies, and new business policies,” says McKenzie with A Plus Insurance. “The reason for the increase in premium is due to inflation and the cost of prices increasing across the board. Some insurance companies are actually pulling out of new business because they’re experiencing a high loss ratio that exceeds revenue.”
Read more: Drivers switching car insurance carriers as inflation continues in 2023
Final thoughts: Budgeting for car insurance
When it comes to a budget for your car insurance, you should have a quantifiable amount for how much you want to spend and can afford. Creating your household budget for essential and non-essential items is a fantastic way to start.
Then, use an online Auto Insurance Estimator to gain a baseline understanding of potential insurance costs.
Check with your insurance company or agent before making a new or used vehicle purchase and keep in mind that insurance costs could increase at your next insurance policy renewal.
Resources & Methodology
Sources
- Insurance Information Institute. “Auto Insurance Facts and Statistics.” Accessed June 2023.
- Insurance Business Magazine. “Revealed – how much more will Americans be paying for car insurance in 2023?.” Accessed May 2023.
- Quicken. “10 Budget Categories that Belong in Your Plan.” Accessed June 2023.
- Reader’s Digest. “How to Differentiate Between Essential and Non-Essential Expenses.” Accessed June 2023.
- U.S. Bureau of Labor Statistics. “Consumer Price Index- May 2023.” Accessed June 2023.
Methodology
Why you can trust CarInsurance.com
The CarInsurance.com editorial team bases its reporting on data it commissioned Quadrant Information Services to gather on average auto insurance rates for more than 34K ZIP codes across the United States.
Typically, averages are based on rates for a single, 40-year-old male, with no violations who commutes 12 miles to work each day and has a full-coverage policy with limits of 100/300/100 and a $500 deductible for collision and comprehensive coverage.
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Laura Longero
Executive Editor
Laura Longero is an insurance expert and Executive Editor at CarInsurance.com, where she specializes in helping consumers navigate the complexities of the financial and insurance industries. She has 15 years of experience educating people about finance and car insurance. Prior to joining CarInsurance.com, she worked as a reporter and editor at the USA Today Network. Her expertise provides readers with practical guidance, helping them make informed choices about their financial and insurance needs.
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John McCormick
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John is the editorial director for CarInsurance.com, Insurance.com and Insure.com. Before joining QuinStreet, John was a deputy editor at The Wall Street Journal and had been an editor and reporter at a number of other media outlets where he covered insurance, personal finance, and technology.
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Leslie Kasperowicz
Executive Editor
Leslie Kasperowicz is an insurance educator and content creation professional with nearly two decades of experience first directly in the insurance industry at Farmers Insurance and then as a writer, researcher, and educator for insurance shoppers writing for sites like ExpertInsuranceReviews.com and InsuranceHotline.com and managing content, now at CarInsurance.com.
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Nupur Gambhir is a content editor and licensed life, health, and disability insurance expert. She has extensive experience bringing brands to life and has built award-nominated campaigns for travel and tech. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service.