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Why is Auto Insurance More Expensive Than Homeowner’s Insurance?

auto insuranceEver take a look at your homeowner’s insurance and wonder to yourself, why is homeowner’s insurance so much cheaper? After all, the average American home is worth $200,000, while the average car is worth only about 10 percent of that amount. Considering that homeowner’s insurance must cover the structure itself plus contents, you would think auto insurance premiums would be much lower.

The answer is really quite simple. Insurance premiums are not solely based on the value of the item insured; they’re actually determined more by the risk of loss. Since you can drive your car down the highway at 70 miles per hour – or more than 100 miles per hour if you choose to break a law – your automobile is at much higher risk of complete loss than your home. Risk is calculated based on statistics, and statistically, your car is associated with a much higher risk than your home, despite the sticker price on each item.

Auto insurance providers also calculate your risk based on a wide variety of factors, such as:

  • driving history
  • accident history
  • type of car
  • age
  • martial status
  • credit score
  • how much you drive each day (mileage)
  • where you live
  • other factors, such as your occupation, where your park your car at night, and your GPA (if you’re in school)

Aside from your personal risk as a driver, auto insurance companies also recognize the fact that you’re on the road with other drivers who may engage in risky behavior. Your home, on the other hand likelihood of water damage. Therefore your risk of a car accident is much higher than the risk of something happening to your home.