Insure.com analysis 2018: Percentage of income spent on auto insurance, by age group

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Most of us rack up quite a few miles behind the wheel over the course of our lifetime. Unfortunately, we also fork over a fair amount of coin to car insurance companies. To see what you might expect to pay, what percentage of income is paid for car insurance at different stages of life.

While teens take a massive hit, spending almost 25 percent of their income on car insurance, once you move into adulthood, the impact is much less severe and by the time you are considering a mid-life crisis, car insurance is actually a pretty good deal.

Car insurance offers a variety of different protections that can literally be a financial lifesaver if you are in a serious accident. Liability insurance can protect you from devastating financial losses if you injure other people or damage property while collision and comprehensive will pay to repair your car if it damaged.

In order to find out how much of your income is spent on car insurance throughout your life, Insure.com analyzed rates for 10 ZIP codes in each state from up to six major insurance companies and averaged it by age for different coverage sets.

We ran three different coverage levels, one being the state minimum, a mid-range policy with liability limits of 50/100,000/50 (50,000 per person, 100,000 per incident, $50,000 in property damage) and finally a policy with liability limits of 100/300/100, with comprehensive and collision carrying a $500 deductible.

We broke down the data into age ranges used by the federal Bureau of Labor Statistics, matching average car insurance prices with federal median wage figures.

Here’s what we found.

1. Ages 16-19: Teens pay highest portion of income (24%) for full coverage car insurance

The search for affordable car insurance can be frustrating when you have a teen on your policy. 

Teens end up taking the biggest hit when it comes to car insurance mainly because they are inexperienced drivers.

According to a study done by the AAA Foundation for Traffic Safety, 16 to 17 year old drivers are nine times more likely to be in a crash than adults. Centers for Disease Control and Prevention (CDC) data shows that while teens between 15-19 represent roughly 7 percent of the U.S. population they accounted for 11 percent of the total costs of motor vehicle injuries.

“Statistically speaking, the majority of teenage boys between 16-18 years of age will have at least one accident in that time frame, ” warns Brent Thurman, President of Keystone Insurance in Utah. “Since an insurance company is virtually guaranteed that they’ll be dealing with at least one claim during those years of teenager driving, it’s easy to see why rates jump so incredibly high,” he continues.

All of this accident data leads to very expensive insurance premiums. We ran the numbers and drivers age 16 to 19 pay an average of $2,261 per year for 50/100/50 in auto insurance. This is 10.4 percent of the annual median wage for this age group, which comes in at $21,840 according to the Bureau of Labor Statistics (BLS). This figure jumps to 24.5 percent if you up your coverage levels to 100/300/100, which carries an annual premium of $5,346.

2. Ages 19 – 24: Pay nearly 9 percent of income for full coverage car insurance

While young adults do a bit better, they still pay a hefty amount for car insurance. Fortunately, premiums drop as they gain driving experience. In fact, the premium for a 20 year old ($1,261) is roughly 62 percent more than a 24 year old pays ($779) for the same coverage levels.

“What’s great for drivers in this age-bracket is that they’ll see the largest price drop in their lives from simply aging one year older,” confirms Thurman. “At this point the driver is legally an adult. Insurance companies begin to trust you with greater responsibilities and options. You’re driving to work by yourself, as opposed to driving with friends for fun, lowering distractions. Most importantly, you have a lot more experience than you did when you were green. The odds are decreasing that you’ll get in a wreck.”

There are ways to drive down the costs if your child is still on your policy. “Depending on the state, they can be listed as away at school if they attend school 100 miles away or more without a car,” advises Myles Holley with Barnum Benefits Advisors. “This provides a small break on the auto insurance and good student discounts will apply if Junior is keeping their grade point up,” Holley continues.

The drivers in this age group have a median income of $27,456 and on average spend $956 or 3.5 percent of their income on car insurance. This number jumps up to 8.8 percent if they opt for higher coverage levels.

While its unlikely that their car insurance premium is the only factor keeping them at home, according to a new analysis by the Pew Research Center, 31 percent of people between the ages of 18-34 are living with their parents.

3. Ages 25-34: Pay 4 percent of income for full coverage car insurance

Finally, a bit of relief when it comes to sky-high car insurance rates. As these drivers move into adulthood, their premiums start dropping and stay fairly affordable. In fact, the average premium for a 25 year old ($691) is only $64 a year more than it is for a 35 year old ($627). As an added bonus, these drivers can now rent a car.

“As we all know, with our mid-20s fleeing and our mid-30s approaching, we experience a ton of life changes,” points out Thurman. “Careers become strengthened, families unite, investments and assets increase. It’s logical to assume that most people in this group have ?began to get ?their ducks in a row and are behaving as consistent and mature adults, which leads to lower rates.”

While insurance costs are dropping, other expenses are competing for this groups income. “Typically, in this stage of a career the highest expenses generally are rent, housing, student loan repayments, and insurance premiums”, advises Ron A. Pac, a CFP with the Barnum Financial Group.

This is also the age when many people are starting to have kids. “Childcare is a huge expense for families with two working parents. For those who choose to have one parent stay home, they often have to significantly reduce their discretionary expenses. They might also be saving for their first home, along with furnishings and décor,” says Leah Hadley, Senior Financial Advisor at Great Lakes Investment Management.

Drivers in this age group are earning a median income of $39,416 so they are only forking over 1.7 percent of their income for car insurance with a middle of the road policy. Pushing the coverage limits up results in an annual premium of $1,655, which still only eats up 4.4 percent of their annual income, making car insurance pretty affordable at this point.

4. Ages 35-44: Pay 3 percent of income for full coverage car insurance

The good news continues in this age group, as long as you have kept your driving record clean. Premiums continue to drop as your income heads up.

These drivers are only spending about 1.2 percent of their income for a middle of the road policy and 3.1 percent for a higher limit policy. This shakes out to an average premium of $612 or $1,517 for higher limits.

Drivers in this age group are often shuttling kids around town and most of us drive a bit more carefully when our offspring (and their friends) are in the backseat. Safe driving habits lead to fewer tickets and accidents, lowering premiums.

Despite all of the safe driving going on, rates often bounce up a bit in this age group according to Thurman. “This category is a little atypical, because we often see an increase in rates caused by self-rewarding behavior. Careers are in full-stride and it’s at this stage many car owners buy a “nice car” with a luxury brand on the hood which will push their premiums up a bit.”

It’s not just luxury cars competing for a bit of the paycheck at this age. In mid-life income generally ramps up, and the largest increase in expenses typically is in housing. Most individuals are either purchasing their first home, or have outgrown their “starter” home, and are moving into a home for their family, says Pac. “We usually see families spending 20 percent of their income on their children’s living expenses or extracurricular activities,” Pac continues.

This group also needs to be aware of other types of insurance. As your household assets grow it is important to protect your home and family with home, life, and health insurance. An increasing need for liability coverage is also important for people in this age group as their net worth is increasing.

5. Ages 45-54: Pay 2.8 percent of income for full coverage car insurance

Very little changes for this group of drivers. Car insurance rates continue to fall with the average premium coming in at $578 for middle of the road coverage and $1,416 for higher coverage levels. This represents only 1.2 percent of their $50,024 yearly income or 2.8 percent if you opted for the higher coverage levels.

According to data from the BLS this is also the high water mark for income. Unfortunately it’s all down hill income wise from here.

Car insurance rates are low for good reason; most drivers are pretty experienced by now. “Most drivers at this point have been driving for nearly thirty or forty years. That approaches or — surpasses — the Malcolm Gladwell rule of 10,000 hours to become an expert. While there are always exceptions to the rule, in general, accidents are far less common in this age bracket,” says Thurman.

While car insurance rates are extremely affordable, they may be competing with other expenses people in this age group are experiencing. Middle-aged people often must help their parents while still supporting their own children. A 2011 study from MetLife found that nearly 10 million people age 50 and older are caring for aging parents in the U.S.

6. Ages 55-64: Pay 2.8 percent of income for full coverage car insurance

According to our data, the magic age of 55 is the low point for car insurance premiums, once you enter the 65 plus group things are headed back up, but only slightly. The average premium for a 55 year old is $560 for an average policy or $1,363 for the higher limits policy. This is the lowest premium across all age groups so enjoy it while it lasts.

Median income has dropped slightly to $49,608, which means that the middle of the road policy is eating up 1.2 percent of their yearly income and the higher limits policy grabs just 2.8 percent.

“Not much has changed between this group and the previous one, but now these drivers are approaching retirement, so the time spent on the road is shrinking, which lessens your exposure to accidents,” says Thurman.

While insurance costs are at an all-time low, children and their related expenses may be back in the picture and last minute retirement savings could eat up any spare cash. “A lot of kids are returning home after college and continue to dip into the bank of mom and dad. This group is often catching up on retirement contributions, trying to max out retirement plan contribution limits,” says Hadley.

7. Age 65 and over: Pay 3.6 percent of income for full coverage car insurance

Rates are headed back up once you cross the 65 plus threshold. Luckily, the increases are not too dramatic. The average premium for a 65-year is $1,402 for a higher coverage limit policy while an 85 year old can expect to pay $1,987 a year.

At this point, most people are spending about 3.6 percent of their income ($46,176) on car insurance for a higher limit policy.

While they are not as risky as teens or young adults, seniors are charged more, in part, because of the physical decline that comes with age, says Jim Whittle, assistant general counsel and chief claims counsel of the American Insurance Association. “It is important for insurance to reflect risk, to avoid situations where good drivers are underwriting folks who may have more challenges.”

Mark Vallet

Contributing Researcher

 

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Mark is a freelance journalist and analyst with over 15 years of experience covering the insurance industry.