$16,397 for Car Insurance? The Strange (but True) Story

Buying car insurance is like buying real estate: The most important three words are "location, location, location." Where you live has a huge impact on the cost of your car insurance. That's because car insurance companies are constantly trying to predict and manage their risks. People who live in areas that have higher rates of car crashes, auto thefts, severe weather, and other car damage are typically going to have to pay higher auto insurance premiums.

But according to a recent survey from CarInsurance.com, one state in particular is home to some shockingly high auto insurance costs. And ironically, it's the state that is known as the home of U.S. automakers: Michigan.

The highest car insurance premium in Michigan costs $16,397. Let's see why Michigan residents have to pay such high costs for car insurance -- and what it means for your auto insurance premiums in 2024.

Top 10 most expensive states for car insurance

A recent survey from CarInsurance.com shows just how expensive car insurance can be depending on where you live. The survey found that the national average cost of car insurance is $1,682 for a full-coverage policy. But your costs can be much higher if you live in certain states.

Here are the 10 most expensive states for car insurance, based on CarInsurance.com's survey.

Michigan: Home of Motown and massive auto insurance costs

According to the CarInsurance.com survey, residents of Michigan have the fourth-highest average car insurance costs in America. It's ironic that the state that's the home of "Motown," and headquarters of some of America's most famous car companies, has such expensive car insurance.

One reason why Michigan car insurance is so expensive is because Michigan is a no-fault car insurance state; no matter who causes a car crash, as a Michigan car insurance customer, you can demand that your car insurance company help pay for the damage. Another reason is because of issues with how much minimum insurance coverage people are required to buy.

Until 2019, when the Michigan state legislature passed auto insurance reform legislation, Michigan drivers were required to buy unlimited personal injury protection (PIP) coverage as part of their car insurance policies. Michigan drivers have more choices now for how much PIP coverage to get, but many people still keep paying the full price for unlimited coverage -- and that makes average premiums higher.

Michigan also has a high percentage of uninsured drivers -- about 25% of Michigan drivers are uninsured, according to The Flint Courier News. When car insurance gets unaffordable, some people make the risky decision to go without insurance altogether. And along with being potentially ruinous to their own personal finances, uninsured drivers cause car insurance premiums to go up for everyone else.

But how does anyone end up paying $16,397 for car insurance -- almost 10 times the national average? Let's look at one more reason why some people in Michigan are paying so much for car insurance.

Are non-driving factors to blame?

The CarInsurance.com survey doesn't specify where within Michigan that $16,397 premium came from. But based on other media coverage and research into Michigan's auto insurance market, I would guess it was Detroit. For many years, drivers in Detroit have been charged much higher auto insurance rates than residents in other areas of Michigan.

Research from Poverty Solutions at the University of Michigan found that as of 2020, average auto insurance rates in Michigan were $2,535, but average rates in Detroit were $5,146 -- about 103% higher than the state average! In Detroit, auto insurance premiums cost about 18% of the median income -- while the U.S. Department of Transportation considers "affordable" car insurance to be 2% of median income.

Higher costs of car insurance for Detroit are not just about one city -- they involve racial disparities, too. The university's research also found that, as of 2019, in 37 Michigan ZIP codes where the majority of residents are Black, the average car insurance premium was $5,500 per year, compared to $3,106 for the Michigan state average. Some activists and researchers have called this "insurance redlining," where Black people are getting charged unfairly high prices for car insurance just based on where they live.

To fix Michigan's high car insurance costs, the University of Michigan recommends new limits on how car insurance companies can set premium rates. Instead of using "non-driving factors" like credit scores or ZIP codes, the researchers want car insurance companies to focus more on customers' driving factors, like miles driven, safe driving record, and years of driving experience.

Bottom line

Even if you live in a high-cost state for car insurance, you still have options. Start by shopping around for cheaper car insurance quotes. If you want special discounts on car insurance, you might consider car insurance that rewards safe drivers. Some of the best car insurance companies now offer special plans that (if you agree) can track your driving data and reward you with lower premiums for safer driving. Or you could consider raising your deductible or eliminating optional coverages.