This Is How Much The Average American Pays for Auto Insurance

I recently received the annual renewal notice for my car insurance policy and looked at it more closely than I ever had before. According to Bureau of Labor Statistics data, car insurance premiums have soared recently and are up 20.6% over the past year.

That's a massive increase, and it's left many Americans paying far more for car insurance than they have in the past. But how much exactly? Here's what the average driver is paying, why costs are rising, and what you can do to help lower your insurance premiums.

Average car insurance costs and why it's so high

Americans are paying, on average, $3,017 annually for their car insurance, or $251 per month. That's a substantial amount of money going to insurance, and it equals a little more than 4% of the average American's monthly spending.

Inflation is the culprit for a lot of price increases over the past few years, but car insurance rates have risen six times faster than the rate of inflation. So, what's going on with car insurance rates? Here are a few factors causing price jumps:

• Repair costs have increased: A big factor influencing car insurance premiums is how much a vehicle costs to repair. Over the past few years, a parts shortage made it costlier to fix vehicles, partially resulting in a 20% increase in repair costs. There's also a significant difference between the amount of mechanics entering the workforce each year compared to those leaving, according to the National Automobile Dealers Association.
• Vehicle prices have soared: The average new car transaction price jumped 25% over the past four years to $47,401. The more expensive a car is, the more it costs to repair or replace, so insurance companies have raised some rates in response.
• Some insurance companies are offsetting losses: Some insurance companies have lost lots of money insuring homes and cars in states that have been hit hard by extreme weather events. Some companies have even stopped issuing new policies in some states, driving up costs. Those who stay may be raising rates to offset costs.

Car insurance premiums vary by state

What you pay for your insurance depends on a variety of factors, including your age, credit score, and what vehicle you drive. But where you live also matters.

For example, Hawaii has the cheapest car insurance premiums, on average, compared to the rest of the country. The average annual car insurance cost is just $1,619 -- about 46% lower than the national average. Two main reasons for the state's cheaper insurance are that state laws don't allow insurance companies to factor in driver age or credit scores.

However, some states are far more expensive than the national average. Some states have stricter laws for what types of coverage are required, which can drive costs higher. The most expensive states for car insurance and their average premiums are:

• Michigan: $4,894
• Louisiana: $4,312
• Florida: $3,997
• New York: $3,909
• New Jersey: $3,720

How to lower your car insurance costs

The good news is that you don't have to pick up and move to a different state to get a better insurance rate. Although, I'd be willing to make that sacrifice to live in Hawaii.

Here are a handful of things you can change to improve your premiums:

• Bundle your insurance: Bundling your home (or renters) and auto insurance together could reduce your insurance costs by up to 7% with some companies. If you have policies with extensive coverage, your savings will likely be maximized by bundling.
• Shop around for quotes: Switching car insurance companies may seem like a huge hassle, but it could be worth it. Research has found that 60% of drivers who comparison shop end up saving on their car insurance premiums. You can compare policies from the best car insurance companies online, making saving easier than ever.
• Take advantage of discounts: If you're happy with your insurance company, look into what discounts it offers that you're not taking advantage of. For example, taking a defensive driving course could help you save up to 10% on your insurance premiums. Also, some companies offer usage-based insurance that uses an app to evaluate your driving habits and then charges you based on how good of a driver you are.
• Improve your credit score: Since many insurance companies use your credit score to help set rates, it's a good idea to try to improve it. Paying your bills on time is one of the most important things you can do to help your score. Paying down your credit card balances is also critical, and doing so can sometimes quickly increase your credit score.

Car insurance premiums aren't likely to come back down any time soon, so taking steps now to improve your premiums could go a long way in helping you save money on your next policy renewal. I'm looking into a few ways to save money myself, so maybe save me a seat in the defensive driving course.