Are you a new driver? Buying your first car? Have you thought about car insurance?
If you're in Michigan I am sure that you have. In Michigan, the average annual car-insurance premiums are $2,087. in the United States, the average is about $1500 according to the thezebra.com. In Detroit the prices are more extreme, the average cost of insurance premiums in Detroit is $5,414 per year.
Ohio has the cheapest rates in the country with an average insurance premium of $764.
Why do the rates vary so much between the two states?
There are hundreds of factors that go into determining auto insurance rates. Your location, the vehicle you drive, past driving history, credit score, educational qualifications, etc.
States that have higher insurance rates, have them because of damaging weather events or densely populated areas. None of these reasons fully explain why Michigan’s rates are so high. Michigan’s friendly rival to the south experiences cold winters as well but has the nations cheapest insurance.
“No-Fault” Insurance at Fault?
Well-intentioned policies from the state of Michigan have a large share of the burden when it comes to explaining the difference. Michigan mandates that all drivers buy no-fault insurance with unlimited medical insurance. The idea was to simplify claims, reducing the number of lawsuits. Unfortunately, the opposite has happened. Because of “no-fault”, insurers are on the hook for unlimited lifetime medical expenses and lost wages after a car accident no matter who's at fault. This unlimited stream of cash has incentivized more lawsuits instead of less.
In Michigan, when you go into the emergency room, you might be asked this question many times “Were your injuries a result of an auto accident?” If your answer is yes, they know the auto insurance companies are liable and because in Michigan there is no ceiling on what hospitals can charge, similar procedures are billed at 3 or 4 times the negotiated price.
MCCA Fees Add to the Burden
In order for insurance companies to be able to afford the exorbitant expenses of unlimited coverage, the state of Michigan created the Michigan Catastrophic Claims Association. The MCCA reimburses auto no-fault insurance companies for each Personal Injury Protection (PIP) medical claim paid in excess of a set amount. For drivers, this means that in addition to the coverage that you already purchase, you also have to pay a $170 fee on top for each vehicle.
Lack of Public Transport
When you combine the two factors above, it forces some people to drive without insurance (by purchasing a 7-day plan whenever registering a car). When you include a lack of public transportation and the poor condition of Michigan Roads you create a perfect storm of high insurance rates.
Options to Save?
It is not all hopeless but if you live in Michigan you should be careful to avoid paying too much for car insurance. Some tips to remember:
- Shop around different insurance companies
- Choose a plan with a higher deductible (for a lower monthly cost)
- Choose lesser coverage on older cars
- Maintain a good credit record
- Low mileage discounts
Do you have other ideas on how to save on insurance? Share them with us.
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