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Are Electric Cars Expensive to Insure?

While there are many reasons to consider purchasing an electric vehicle (EV), including saving money on fuel, transitioning from a traditional combustion vehicle to an EV could come with extra expenses. For instance, electric car insurance costs could be higher than expected. Learn what criteria insurers use to calculate EV premiums so you can factor in those extra costs and get appropriate insurance coverage for your new vehicle. 

Why Are Electric Cars More Expensive to Insure?

Insurers consider the potential costs of repairing or replacing a vehicle when they determine premiums. As such, insurance for electric cars may be more expensive than for combustion vehicles because EVs tend to come with a higher purchase price in general.

EVs may be more vulnerable to accident-related damage due to their multiple sensor-based functions, original equipment (OE) requirements, and required additional scans and calibrations if damaged in a collision. Overall, repairing an EV requires access to technicians with special training, and since the market is not yet saturated with EVs, the associated labor costs are likely higher than they would be with a combustion vehicle. In addition, because EVs are more expensive to repair, they may be more likely to be considered a total loss than combustion vehicles following an accident.

However, keep in mind that electric cars need the same types of insurance as combustion vehicles. There’s no difference with an electric car insurance policy other than it may be more expensive than insuring gas-powered cars. 

Depending on your needs, you can purchase liability-only coverage to meet your state’s mandatory minimums, or choose to add collision, comprehensive, and bodily injury coverages. However, if you have a loan or lease on your EV, your lender will likely require full coverage insurance, including collision and comprehensive coverage. They may also require gap insurance to help cover the difference between the total amount you owe your lender and the insurance company’s settlement if your vehicle is a total loss after a covered accident.

Costs of Electric vs. Gas Cars

In general, cars with a higher price tag cost more to insure, so it’s crucial to consider the price of an EV. Fans of EVs may say that since there’s no need to purchase fuel and an EV has fewer maintenance needs, the higher manufacturer-suggested retail price (MSRP) is easily justified. 

Gas
Hybrid
Electric
2023 Toyota RAV4
$27,575
$30,225
$42,000*
2023 Hyundai KONA
$21,990
N/A
$33,550
2023 Ford F150
$34,085
$42,840
$51,974
*Starting price for 2023 Toyota bZ4X; Source: All prices pulled from manufacturer websites; Accessed November 2022

However, EVs often come with a premium price tag that can make it difficult to quantify whether fuel, maintenance, and tax incentives can offset the acquisition price, especially when you factor in the higher cost of insurance for electric cars. Take a look at the estimated 5-year average insurance costs for EVs and comparable combustion engine cars:

Luxury Vehicles
MSRP
Estimated Average Insurance Over 5 Years
EV: 2021 Tesla Model S
$69,420
$7,150
Gas: 2022 Jaguar F-TYPE
$69,900
$6,935
Source: Kelley Blue Book; Accessed December 2022
SUV and Crossover Vehicles
MSRP
Estimated Average Insurance Over 5 Years
EV: 2022 Audi Q4 e-tron
$43,900
$5,220
Gas: 2022 Cadillac XT5
$43,995
$3,820
Source: Kelley Blue Book; Accessed December 2022
Pickup Trucks
MSRP
Estimated Average Insurance Over 5 Years
EV: 2022 Ford F150 Lightning
$39,974
$4,275
Gas: 2022 Ford F150
$31,520
$3,610
Source: Kelley Blue Book; Accessed December 2022

Other Insurance Rate Factors

Each insurer uses proprietary algorithms to determine an exact rate for a driver and their vehicle. In general, insurers consider many factors about the insured person and the policy in addition to the value and potential repair costs of the insured vehicle. A licensed agent can help you get multiple quotes from reputable insurers that offer coverage for your EV. 

Driver Details

Insurance companies use information about your age, sex, and where you live to help determine premiums. Your location affects your auto insurance premiums because people who live in rural areas may be statistically less likely to be involved in an accident or have their car stolen than those who live in bigger cities. 

Other personal details like sex may affect insurance rates, as well. Many insurers believe that young men are more likely to cause an accident than other age and sex-based demographics. In an effort to offset that risk, young men typically pay more for car insurance than young women. However, based on more risk profiles based on age and sex, when women reach the age of 25, they may pay more for auto insurance than men. Some states are making efforts to remove these types of assumptions from calculating insurance rates; in California, Massachusetts, Michigan, Montana, North Carolina, and Pennsylvania, it’s against the law for insurers to set premiums based on sex. 

Driving History

Insurance companies look closely at your driving record and may go as far back as 3 to 5 years when evaluating your overall driving habits. Even if your electric car has never been driven, the insurer will consider your driving history with other vehicles. Drivers with a clean record free from moving violations and serious driving convictions, such as driving while under the influence (DUI), pose a smaller statistical risk of triggering an auto insurance claim. For this reason, their insurance rates would be lower than someone who has traffic violations.

When you initiate an auto insurance quote, you give permission for insurers to check your driving record for moving violations and traffic convictions. Insurers get your driving record from various consumer reporting agencies, such as LexisNexis or your state’s Department of Motor Vehicles.

In addition, when buying auto insurance, you agree to let car insurance companies check your official driving record for past moving violations and your Comprehensive Loss Underwriting Exchange (CLUE) report for past auto insurance claims. All of this helps insurers build an idea of how likely you are to file a claim.

Prior Insurance History

When you file an insurance claim, the insurance company can report the date of the loss, the loss types, the amount paid on the claim, and information about the policy to the Comprehensive Loss Underwriting Exchange (CLUE). Insurers check your CLUE report for past auto insurance claims to help determine how likely you may be to cause an insurance claim in the future. Typically, this is only an issue if you file what is deemed an excessive amount of claims. Information about auto claims typically remains on your CLUE report for 7 years

Credit History

The federal Fair Credit Reporting Act (FCRA) states that insurers can look at your credit information to help determine whether to issue a policy and to help set insurance premiums. Some insurers see a statistical correlation between the likelihood that you may file a claim and your credit standing. They may believe that those with better credit are less likely to file claims than those with poor credit history. 

However, states have the right to restrict the use of credit scores when insurers are setting premiums. For example, California, Hawaii, Maryland, Michigan, and Massachusetts currently ban or limit the use of credit scores when determining insurance policy rates. 

Coverage Amounts

The amount of coverage included with your auto insurance policy is the maximum the insurer pays for a single claim. Higher coverage amounts typically trigger larger premiums. 

If you choose full coverage insurance, your deductible also affects your insurance premiums. In general, a higher deductible results in lower auto insurance premiums. The deductible is the amount of money you pay out of pocket before your insurance covers damage to your vehicle, so it’s important to choose a deductible that you can easily afford should you need to make a claim. A lower deductible may cause your premiums to go up, but policyholders pay less money upfront to insure an electric car if you need to make an auto insurance claim. 

Take Advantage of Electric Vehicle Discounts

If you choose to purchase an electric or hybrid car, also known as a green vehicle, you may be eligible for discounts on insurance premiums, depending on your insurer. Depending on numerous factors, including when you purchase your EV, you may also be eligible for tax savings. Check with your tax preparer to understand whether you are eligible to claim an EV tax credit. 

Insurer-offered Green Car Discounts

Insurers may offer green car discounts for qualifying EVs for numerous reasons: Some insurers may consider someone that would buy an EV to be more responsible in general and less likely to trigger an auto insurance claim; others may want to encourage drivers to consider this green alternative to a gasoline-powered vehicle. 

Green car discounts are available through individual insurers, and not every insurance company offers EV premium discounts. 

Federal and State Tax Credits for New Electric Cars

Plug-in hybrid and all-electric vehicles purchased in or after 2010 may trigger a federal income tax credit of as much as $7,500, depending on the EV’s battery pack capacity. Additionally, depending on where you live, you may also be eligible for state or local incentives. 

For example, the California Air Resources Board provides rebates of up to $750 when a California resident buys or leases an EV with a minimum battery capacity of 5 kilowatt-hours. 

The federal electric vehicle tax credit is a nonrefundable credit for taxpayers who purchase a qualifying electric vehicle. For 2021 and 2022, the tax credit is $2,500 to $7,500, depending on whether you own the car, the number of EVs sold by the manufacturer, and the vehicle’s weight. 

Those who want to claim the EV tax credit for electric or hybrid vehicles purchased after August 16, 2020 are also subject to a final assembly rule, which states that the final stages of assembly of an EV tax credit-eligible car must be completed in North America. Those interested in claiming the tax credit can use a Vehicle Identification Number (VIN) decoder to determine the vehicle’s final assembly location. 

Note that several changes to the EV tax credit go into effect in 2023, including expanded electric vehicle type eligibility, income thresholds, and manufacturing requirements. The new EV credit for eligible vehicles has a maximum value of $7,500 for new EVs and provides up to $4,000 or 30% of the sale price (whichever is larger) for used EVs that are at least two years old and are less than $25,000.

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Find an auto insurance policy that meets your needs.

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