The True Cost of Auto Insurance in 2023 – Bankrate.com

February 17, 2023

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ANNUAL REPORT
The true cost of car insurance is the percentage of average household income spent on an annual full coverage car insurance policy. Nationally, full coverage car insurance costs an average of $2,014 per year. The national average annual income is $68,852, according to data from the U.S. Census Bureau. This means that, nationally, drivers spend an average of 2.93 percent of their income on car insurance in 2023. This is up from 2.57 percent in 2022, which is no surprise, given the rapid inflation the country experienced last year.
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AVERAGE ANNUAL PREMIUM
for full coverage insurance
PERCENT OF INCOME SPENT
on full coverage insurance
HIGHEST TRUE COST
highest percentage of income spent on car insurance
LOWEST TRUE COST
lowest percentage of income spent on car insurance

Inflation was a hot topic in 2022, and with good reason. Most households felt the effects of rising costs and the fear of an impending recession. Recessions can affect car insurance, as well, so understanding how the economy impacts insurance may help you prepare if we do slip into an economic downturn.

Assistant Vice President of State Affairs for National Association of Mutual Insurance Companies (NAMIC) Jon Schnautz told Bankrate that “inflation is manifesting in the cost of repair parts, labor and medical care. These inflationary pressures are further exacerbated by the increased frequency and severity of crashes, accompanied by record levels of personal injury judgments and vehicle thefts.”

These factors combined cause claims costs to rise, which means insurance companies are raising rates to help ensure they can pay those claims. But car insurance rate increases are reactionary, meaning they are a bit delayed when compared to other rising costs. When claim prices rise, an insurer must submit new rates to the department of insurance in each state where it operates and wait for approval before increasing prices. This means that, even though inflation is starting to cool, rates likely won’t go back down in 2023.

Rising premiums don’t mean that your coverage limit is increasing though, and higher costs after an accident could also mean your car insurance isn’t providing as much protection as it used to, potentially leaving you underinsured. While this mostly affects drivers who carry state minimum coverage, it provides a helpful opportunity for all drivers to review their coverage limits for suitability.

For example, imagine that you carry a policy with a $25,000 bodily injury liability limit per person — a common minimum limit in many states — and you cause a crash that results in serious injuries to another party. Because the cost of medical care has risen sharply with inflation, that $25,000 won’t go as far as it used to. It may be worth it to get quotes for higher limits.

Additionally, at least two states — New Jersey and Tennessee — increased their minimum coverage requirements on January 1, 2023. New Jersey’s changes were far more broad than Tennessee’s, where only the property damage limit changed, but the updates provoke the question of whether other states will follow. The increase in cost of living could make minimum limits no longer sufficient, and more states may increase their requirements.

Electric vehicles have exploded in popularity in the last few years. There are now an estimated 2.2 million electric vehicles on the road in the United States, and there could be more than 32 million by 2030, according to S&P Global Mobility. Even if you don’t own an EV, the rising prevalence of these vehicles on the road might change the car insurance industry.

For example, electric vehicles are generally more expensive to repair or replace than comparable combustion-engine vehicles, at least for now. This means that, if you cause damage to or total an electric vehicle, you may need higher liability limits to handle the claim.

If you do own an electric vehicle, you may pay more for car insurance. Electric vehicles may cost more to insure if they require specialized parts and highly-skilled labor after a covered loss. Anything that increases the cost of a potential claim is likely to increase the cost of car insurance.

Each of these trends — inflation, coverage limits changing and electric vehicles becoming more popular — means you may need to analyze and increase your insurance coverage. These factors could all increase your premium, too, which means you may need to assess your budget and plan accordingly for higher rates.

Insurance is designed to protect your finances from the consequences of an accident. If you don’t carry limits that adequately meet your risk level, you could be left with higher out-of-pocket costs. As the costs associated with driving change, your insurance limits may need to change as well. If you aren’t sure how much car insurance you need given the changes in the world, you may want to work with a licensed agent.

Maggie Kempken is an insurance editor for Bankrate. She helps manage the creation of insurance content that meets the highest quality standards for accuracy and clarity to help Bankrate readers navigate complex information about home, auto and life insurance. She also focuses on ensuring that Bankrate’s insurance content represents and adheres to the Bankrate brand.
Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service.
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