Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 15, 2021

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Massachusetts was once again home to the most affordable car insurance in the nation, according to the 2011 Car Insurance Affordability Index released this week by InsWeb. Congratulations on providing your residents with such a wide range of affordable coverage policies!

The Bay State took those honors last year as well, but we and other inquiring minds want to know why.

Well, a state’s so-called affordability factor is determined by dividing its median household car insurance rate by its median household income. And the lower the factor, the less an average family in the state typically spends on car insurance relative to its budget.

What that means is that coverage rates are going to vary depending on those factors. So it probably means there are more well-to-do drivers in Massachusetts, coupled with the fact that insurance is also cheap there relative to other states. Does this mean that Massachusetts sees less claims? Not exactly. It just means that there are other reasons why the coverage average is going to be so low.

Perhaps there are fewer teenage drivers in the households as well. The average cost of what people pay on their annual premiums can increase depending on the age of the drivers they’re insuring, as well as the number of people attached to the policy. A large family with teenage drivers is going to see a higher average premium than a family of two with no children. If you’re a driver that spends less time in your vehicle because you simply use it as a way to get from point A to point B, you’re also going to play a part in determining the average cost a state is going to have.

The dynamics of a state also come into play, such as state insurance laws, traffic, weather, and the number of uninsured motorists. Those may seem like inconsequential factors, but when it comes to filing claims, insurance companies want to know they’ve taken everything they can into consideration.

In Louisiana, for example, their judicial system generally favors drivers, which raises costs for insurance companies and related insurance premiums. If a company is going to be expected to payout for damage done during an accident more often, they’re going to need to recover those costs somehow. Expensive policies aren’t just created to be expensive; there are many items taken into consideration to find the final numbers.

That, coupled with other factors, possibly lower median household income, explains why the Pelican State has the least affordable car insurance in the nation. Sorry Louisiana, you don’t exactly have the cheapest rates around.

Most Affordable Car Insurance by State:

most affordable

Least Affordable Car Insurance by State:

least affordable

What’s the bottom line? 

Even in states that offer competitive rates, it’s going to boil down to the scope of the people living there. If a state sees a high average of crashes each month, that will raise the average expenditures that a provider is going to have. Not only are they responsible for the costs of any damage, but depending on the level of coverage a driver has who was a part of the crash, they may be responsible for medical payments in the case of bodily injuries occurring during the accident as well. That’s why it’s important for a state to put emphasis on its drivers keeping a clean record.

Purchasing an auto policy is never going to be cheap, but it’s definitely going to be cheaper in a state where people average out their income, drive safe, have clean driving records and good credit scores, and meet any of the other criteria that companies look at to determine what they charge.  

By dividing the median household car insurance rate by the median household income within a state, you can roughly figure out what the annual rate of auto coverage would be. Perhaps not in numbers, but on a range of low to high. However, if this is still confusing, you can always contact the customer service department of your provider to get the breakdown in other ways. With there being so many coverage options, it’s best to have a clear understanding of what you need. Even when you live in a state like Massachusetts where the annual cost of coverage is going to be low, you don’t want to overpay. 

Tip: How can I lower my car insurance rate?