10 States Where Car Insurance Takes the Biggest Bite Out of Your Paycheck

1. Michigan

7.2% of take-home pay

Michigan has long been plagued by out-of-control costs for auto insurance, even for the most affordable policies. However, state officials have taken steps to rein in what had been driving rate increases — unlimited medical benefits for people hurt in accidents. A new law that takes effect in July 2020 will end Michigan’s standing as the only state in the nation that requires drivers to buy unlimited personal injury protection (PIP), according to the Detroit Free Press.

PIP premiums can eat up half of drivers’ overall car insurance costs. As costs have soared over the decades, Michigan also has battled the challenge of motorists driving without insurance.

2. Louisiana

6.35% of take-home pay

Louisiana’s business lobby says the state’s legal system often awards large sums to claimants in Louisiana car insurance cases. The state ranks near the top of the American Tort Reform Association’s list of “judicial hellholes” that, in the group’s view, make it too easy for plaintiffs to bring suits. State Insurance Commissioner Jim Donelon has pointed to the legal framework as a culprit in high rates, according to the Baton Rouge Advocate. Insurers don’t just absorb those judgments; they pass the costs on to policyholders in the form of higher premiums.

3. Kentucky

5.77% of take-home pay

Kentucky’s soaring rates are something of a head-scratcher. The state has only a moderate percentage of uninsured motorists, and its drivers are bad but not terrible: They rank No. 20 on MoneyGeek’s Worst Driver list. The state had the sixth-highest increase in rates from 1989 to 2015, according to the Consumer Federation of America. Despite these high rates, smart shoppers can still find affordable policies.

4. Florida

5.14% of take-home pay

Florida regulators and politicians have long struggled to bring down the high costs of car insurance. Given Florida's large numbers of tourists and older drivers, the state’s roads can be treacherous. What’s more, fraud of one form or another is rampant. For years, the state’s personal injury protection policies were exploited by scammers. In the latest scheme, unscrupulous players bilk carriers for phantom fixes of cracked windshields, the Tampa Bay Times reports. In another factor pushing rates up, Florida has the nation’s highest rate of uninsured motorists, according to the Insurance Information Institute.

5. Arkansas

4.76% of take-home pay

Here’s another case where comparatively low incomes raise the percentage of take-home pay eaten up by car insurance. Arkansas’ average premium of $1,698 is high but not astronomical. However, the average take-home pay for the state is just $35,665. Another factor: Arkansas’ drivers rank No. 7 on MoneyGeek’s Worst Driver list.

6. Mississippi

4.63% of take-home pay

As with West Virginia, Mississippi’s car insurance rates aren’t exceptionally high, but the state’s low incomes mean auto coverage takes a comparatively large bite out of take-home pay. The typical premium of $1,587 lands in the middle of the pack nationally. But the state’s average take-home pay of $34,269 ranks low compared to other states. Compounding the pressure, Mississippi has the nation’s second-highest rate of uninsured drivers, according to the Insurance Information Institute. And the state’s drivers rank No. 5 on MoneyGeek’s Worst Driver list.

7. Oklahoma

4.50% of take-home pay

Blame Mother Nature for some of the Sooner State’s high ranking. Oklahoma sits squarely in “Hail Alley,” according to the Insurance Information Institute, and those falling ice chips do a number on cars. Oklahomans themselves take some of the blame, too. The state has a stubbornly high share of uninsured motorists, according to The Oklahoman.

8. West Virginia

4.31% of take-home pay

West Virginia’s auto insurance rates aren’t unusually high, but the state’s low incomes mean car insurance takes a comparatively large bite out of take-home pay. The typical premium of $1,536 is in the middle of the pack nationally. But the state’s average take-home pay of $35,664 is low in relation to other states.

9. Nevada

4.24% of take-home pay

Car insurance costs jumped in 2018 after the state nearly doubled the amount of liability coverage drivers were required to carry. There’s also the reality of the round-the-clock nature of Las Vegas, a tourist town where the casinos are always open, and the party is always on. That creates 24/7 traffic patterns that are more intense than in many cities, KSNV reported.

10. Rhode Island

4.23% of take-home pay

Rhode Island has some of the nation’s priciest car insurance. The American Property Casualty Insurance Association blames body shops. Rates have been driven up in part by body shops pushing for state laws favorable to their businesses but unfavorable to consumers, the trade group argues.

Why are insurance premiums so different by state?

For a variety of reasons, car insurance costs vary widely by state. Each state regulates carriers separately, and rates are approved state by state. Perhaps the biggest factor is the frequency and severity of claims filed by motorists. The more drivers file for reimbursement for wrecks, theft or weather damage, the more insurers must pay out. This partly explains why a densely populated area like the District of Columbia has comparatively high rates: There’s just more opportunity for drivers to run into one another.

Another wildcard is each state’s regulatory and legal framework. The details can be mind-numbing, but in general, a “no-fault” system — used by Florida, New York, New Jersey and other states — keeps claims out of the courts. In other states, auto claims go through the court system. The insurance industry sees no-fault insurance as a culprit in high-cost states such as Michigan and Florida. However, Hawaii is a low-cost state with a no-fault framework. Another variable is the percentage of uninsured drivers in each state. A higher percentage of uncovered motorists means the insured drivers must pick up a bigger tab.

How to lower your auto insurance bill

While drivers are at the whims of state-by-state conditions, there are ways to lower your car insurance costs. The Insurance Information Institute suggests these tactics:

• Shop around. Get three price quotes.
• Research the car before you buy. Car insurance costs vary widely by make and model of vehicle.
• Raise your deductible. By taking on more risk, you lower your costs.
• Consider dropping collision coverage. If you have a 10-year-old car, there’s probably no need to pay for comprehensive coverage.
• Try bundling. Combining home and car insurance with one carrier can land you a discount (assuming the carrier offers both types of coverage in your state).
• Keep that credit score up. Insurers view credit scores as a proxy for risk, and drivers with poor credit pay more.

Methodology

For each state, we calculated the average paycheck based on median annual income, minus federal, state and average local income taxes and FICA taxes. Our sample taxpayer is married and filing a joint return, has no dependents, is not self-employed, and receives no passive income. Health insurance premiums and retirement savings contributions are also not deducted from gross income.

Annual auto insurance premiums for each state reflect the estimated cost for a 30-year-old single man driving a 2015 Honda Accord EX with a good driving history; the coverage limits are $50,000 bodily injury liability per person/$100,000 bodily injury liability per accident/$50,000 property damage liability per accident, with a $500 deductible for comprehensive and collision.

Jeff Ostrowski is a contributor for MoneyGeek who covers the economy and personal finance.