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Location Matters When it Comes to Car Insurance

Location matters when it comes to car insurance and the rates drivers pay for their coverage. Anywhere you go across the country, there are laws governing the minimum coverage car owners can carry to make their vehicles street legal. Taking a look at the fifty states and the District of Columbia, it is surprising how much car insurance costs vary by state. There is also a wide discrepancy of cost between insurance policies covering drivers in cities and those living in more rural areas.

Car Insurance Minimums Vary Widely by State

Every state is different when it comes to car insurance and the cost of carrying coverage. Some of the differences are based on different state laws governing minimum car insurance requirements. Car insurance law is one area largely governed at the state level with little federal interference. Some states have more stringent requirements for automobile coverage, while others are much more lax in what they require to allow drivers to put their cars out on the road.

For example, each state has different minimum requirements and regulations for bodily injury and property damage coverage on automobile insurance policies. For example, in Alaska, the minimum coverage level is 50/100/25, while in Florida it is only 10/20/10. The first two numbers represent (in thousands of dollars) the state's bodily injury requirements; the first number being the individual minimum coverage limit, and the second the total minimum coverage limit per accident. In other words, a driver in Alaska is required to carry enough bodily injury coverage to provide up to $50,000 worth of care to an individual or a total of $100,000 to all injured parties as a result of an accident. The numbers in Florida are, quite obviously, much lower.

The third number represents (again in thousands of dollars) the state's minimum requirements for drivers for personal property damage liability coverage on their auto policies [1]. Again, the limits in Alaska are much higher than those in Florida. An important fact to remember is that accident victims are not bound by the limits of the insurance carried by the driver who hit them. You can potentially be sued for monies above and beyond what your insurance plan will cover if you should ever be involved in such a situation, so this is something to bear in mind when contemplating only your state's minimum insurance coverage.

Auto Insurance Costs Much More in Some States than Others

Just like minimum coverage requirements, the average cost of insurance varies widely by state. Some states are very reasonable in terms of average car insurance premiums, while others are very expensive. The most expensive area of the country to insure a car in is along the east coast of the United States. The District of Columbia is a more expensive place to get car insurance on average than any of the 50 states, checking in at around twice the rate of the top five least expensive states as of 2006. Eight U.S. states plus Washington, D.C. came in with an average cost of over $1,000 per year, while on the other side of the price continuum, eight states averaged under $600 according to National Association of Insurance Commissioners figures [2].

Looking at the list of some of the most expensive states to insure a car, it is easy to see a direct correlation between dense population and high cost of insurance: three of the top four most expensive states after the District of Columbia are high-population states with extensive urban sprawl and extensive high-traffic areas (New Jersey, New York and Florida). In a similar way, the top five least expensive states for average car insurance rates according to the NAIC's 2006 figures are largely rural in character. North Dakota was the cheapest state of all, checking in at $530, followed by Iowa, South Dakota, Idaho and Kansas [2].

Cost of Insurance Higher in the City

The average cost of car insurance is higher in the city than it is in the country or in sparsely populated suburban areas, and for good reason. Statistically, it costs car insurance companies less to insure vehicles in rural areas than it does in the city, because cars in the country are less likely to be involved in a claim than cars in urban areas. There are many ways to explain this discrepancy, some of them rather intuitive and others somewhat more subtle.

Simply put, a car is less likely to be stolen in a rural setting than it is in a large city. The crime rate in the country is generally lower, because there are fewer people and fewer opportunities for would-be criminals to act on their impulses. Cities are not necessarily crime magnets or havens for criminals; they just offer much greater opportunity and temptation for crimes like theft to occur because there are more people there with more belongings making more events like auto theft possible.

The higher rate of theft in the city can be easily explained by the increased population and greater number of cars present. The same factors also lead to more accidents in urban areas. There are more people driving more cars on the road. This creates more opportunities for accidents to occur. Someone driving in the country may legitimately drive around all day long without ever seeing another car, greatly reducing the chance for an auto accident. This type of day would be a freak occurrence in the city, something that would never happen in most urban areas save maybe in the middle of the night.

Location also matters in terms of which specific city you live in. Because of crime and other car insurance claim statistics, certain cities are extremely expensive when it comes to car insurance, while others are far more affordable. As of 2008, Detroit, Michigan was by far the most expensive city to insure a car in, checking in at about $1,000 higher than the next closest city, Philadelphia, Pennsylvania [2].

But crime and auto accidents only partially explain this wide discrepancy, with some cities costing less than the national average for insurance while others are thousands of dollars above. One additional factor that isn't so obvious has to do with uninsured and underinsured motorists. As a legally insured driver, you have to pay for these motorists, which can cost you very dearly in a place like Detroit, which has astronomical rates of uninsured drivers on the road. These and other factors make it more difficult and complicated to truly determine the cost of living in any municipality.

In many ways, location does matter when it comes to car insurance. In addition to the difference of cost between states and in the average cost for people living in cities versus those living in the country, there are also other differences to consider, such as the affect of your policy cost if you live closer to work and do not have to drive many miles. Keep these factors in mind when you are considering your car insurance options, and factor them in when you are deciding where to relocate to next time you move.

[1] http://personalinsure.about.com/cs/vehicleratings/a/blautominimum.htm Retrieved 2009-11-29.
[2] http://www.iii.org/media/facts/stats/statsbyissue/auto/ Retrieved 2009-11-29.

 

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