Highway Robbery: How to Get a Fair Shake on Costly Auto Insurance

Inflation has caught up with auto insurance consumers, so much so the current coverage the average American has is not enough to cover rising costs in key areas like medical costs and vehicle repair.

Financial analysts call the syndrome “car inflation”, which defines the combined (and rising) costs of off-the-lot vehicle ownership, including auto insurance, car repair, and maintenance costs, and medical charges after being involved in an auto accident.

One area which could make a difference for vehicle owners is auto insurance. 

“Higher medical bills and vehicle repair costs mean that your insurance coverage might be insufficient to properly protect your finances in an inflationary environment,” said Cate Deventer, an analyst at Bankrate.com. “While premium increases continue due to inflation and accidents, increasing your auto insurance coverage limits may be worth considering.”

The trick, Deventer said, is to be financially protected by reducing your risk of out-of-pocket expenses in an accident.

“While the goal is not to over-insure yourself and inflate your premiums unnecessarily, the right coverage is crucial and can offer you the peace of mind you need every time you’re behind the wheel,” she said.

Easier Said Than Done

Having the exact auto insurance needed in an inflationary environment but keeping insurance costs down is no cruise on the causeway.

That’s especially the case with the high cost of vehicle fixtures included in a typical auto insurance policy.

This from Deventer.

Medical costs have increased: Consumer Price Index data shows that medical care service costs rose 5.1% between July 2021 and July 2022.

“Because medical expenses cost more, your coverage limits won’t go as far,” Deventer noted. “Since different car insurance coverage types pay for medical bills in an accident, you may be at risk of being underinsured.”

Vehicle costs have increased: Inflation has also caused the cost of new vehicles to go up 10.4 percent and used vehicle costs to increase 6.6 percent since July 2021.

“Cars are getting more expensive, which means higher repair and replacement costs,” she added. “Due to the increased cost of vehicles and parts, your policy’s coverage limits may be insufficient, especially if you are carrying lower liability limits.”

Getting to the Auto Insurance Sweet Spot

The good news? Getting the vehicle cost coverage you need right now likely isn’t as expensive as you may think.

“Your car insurance is integral to your overall financial health, and your coverage amount could mean the difference between financial discomfort and financial devastation,” Deventer said. “Yet the premium increase for higher limits may not be too significant. For example, going from state minimum liability limits to 50/100/50 coverage is a 5% increase, or $7 a month.”

One way to get the most for your auto insurance money is to steer the cash where it will do the most good.

“Consumers that have comprehensive and collision coverage on their policies are well protected against the rising costs of repairs as they are limited to only paying their deductible to repair their vehicles regardless of the total costs of the repairs,” said Ted Olsen, president of Human Capital Development at Goosehead Insurance, a consumer insurance services platform.

The area where consumers would do well to review with their insurance agent is the liability and medical limits on the policy.

“Thankfully, these coverages are the least expensive to increase and provide the largest amount of protection against rising medical and repair costs for accidents where the consumer is liable for damages,” Olsen said. “Purchasing two to three times as much coverage for liability oftentimes only increases the overall premium by as little as 5-10%.”

Auto insurance consumers can also look for ways to offset the increased cost of the extra coverage that's needed simply by making smart insurance decisions.

“In the past, for example, it’s been affordable to carry very low deductibles on our cars,” Olsen said. “Choosing a higher deductible for the collision and comprehensive coverages will lower the price of the policy quite a bit while still maintaining the coverage you need.

Most auto insurers also offer usage-based insurance programs that cater the premiums to the actual risk of the driving activity.

“If you allow them to track your hard braking or cell phone use while driving, for example, you might be able to save a significant amount of money on your premiums simply because you adhere to safe driving practices,” Olsen noted.

Olsen’s most common-sense advice? Speak to an insurance agent and review your policy annually.

“Staying in one place for decades is not the best way to keep your premiums lower,” he said. “The marketplace is too dynamic and has too many factors to assume there’s not a better option available somewhere else.”

“Have an independent agent do the shopping for you and present various options to make sure you are maximizing your protection and minimizing the premium burden,” he added.