Eco-Friendly Cars and Insurance: What You Need To Know

Consumers have seen “go green” campaigns for years, encouraging them to recycle, compost, or opt for sustainable foods. But until recent years, the car industry has been slower to adopt this directive. As more manufacturers produce desirable, efficient eco-friendly cars, shoppers can now choose between several green vehicles:

• Electric cars run with an electric motor and use a battery rather than gasoline.
• Hybrid cars use a combination of electricity and gas. Some feature plug-in capabilities to recharge.
• Fuel cell electric vehicles (FCEVs) produce electricity using a hydrogen-powered fuel cell, rather than relying on a battery.

To varying degrees, these eco-friendly or “green” cars reduce the environmental impact of driving. They release less smog and greenhouse gases, and electric models have zero tailpipe emissions. As gas prices rise and governments crack down on climate change, green cars are seeing a boom in interest.

Still, these vehicles face barriers to widespread adoption, partially for financial reasons. EVs and hybrid cars are costly to purchase, and they come with other associated costs, including higher insurance premiums. This article explores factors you should consider while shopping for an eco-friendly car. 

The Rise of Eco-Friendly Vehicles

Electric vehicles date back to the 1890s, but they were quickly overtaken by Henry Ford’s mass-produced, gasoline-powered Model T, which made automobile travel more affordable for the average consumer. Electric cars resurfaced again in the 1970s but failed to gain popularity due to their limited range and performance.

In recent years, however, manufacturers have increased their efforts to produce safe, desirable EVs, with the top-end electric of electric vehicles offering competitive mileage ranges, some averaging over 500 miles on a single charge.

In part, this trend can be attributed to government goals and mandates. The Biden administration launched its goal for 50% of all vehicle sales to be electric by 2030, bolstered by tax credits and infrastructure initiatives. Some states, like California, will only allow sales of zero-emission cars starting in 2035.

EVs saw a 55% increase in worldwide sales from 2021 to 2022, bringing the total number of electric cars on the road to 26 million. Trends indicate another 14 million EVs will be sold in 2023, and about 38% of Americans say they are very or somewhat likely to consider an EV for their next car purchase.

How Having an Eco-Friendly Car Impacts Your Insurance Rates

Even with these trends, consumers have a lot to consider before committing to an EV. A major factor is cost: EVs are expensive, and they cost more to insure. Car insurance companies determine individual premiums using a variety of factors, including driving history, age, location, coverage selections, and type of vehicle. Consider how the following factors play into insurance rates.

Advantages

If you’re interested in purchasing an EV but worried about cost, you might take advantage of these ways to save. 

• Green vehicle discounts: Some insurers offer a 5%-10% discount for “alternative fuel” vehicles, including EVs, to encourage consumers to make the switch. 
• Low mileage and usage-based discounts: If you drive safely or infrequently, you may qualify for discounts. Low mileage discounts typically kick in around 7,500 miles per year. Safe drivers can earn usage-based discounts based on driving data collected by their EV.
• Safety equipment discounts: EVs usually come equipped with advanced safety features, such as lane departure warnings and automated emergency braking, which can lower your premium. 
• Potential tax credits and incentives: While government incentives will not affect your insurance, they help lower your overall cost. You may qualify for a federal tax credit up to $7,500 for purchasing an EV.

Drawbacks

Eco-friendly cars have a positive impact on the environment, but the financial burden is not feasible for every consumer. Take these costs as examples. 

• Higher repair costs: EVs use advanced, specialized technology that costs more to fix. With higher potential payouts than gas-powered cars, insurers associate EVs with more risk—and higher premiums. 
• Battery replacement and coverage: U.S. manufacturers must offer an 8-year or 100,000-mile EV battery warranty. However, if an accident damages the car’s battery, it could cost between $4,000 and $20,000 to replace. 
• Vehicle value: On average, EVs cost about $5,000 more than gas-powered cars in July 2023. The high MSRP means it costs more to get comprehensive and collision coverage. 
• Limited repair options: In some areas, it may be difficult to find a mechanic with the right parts and expertise for EVs. This makes maintenance and repair more expensive. 

How to Insure an Eco-Friendly Car

You’ve assessed your costs and found the perfect EV. Now, it’s time to find a budget-friendly insurance plan. Follow these steps to maximize your savings. 

1. Decide on your coverage needs. Determine state requirements, deductible options, and whether you want comprehensive, collision, or other types of coverage. 
2. Consider bundling policies. Most insurers offer discounts if you purchase multiple policies from them. 
3. Shop around. Start by researching insurance companies with green vehicle discounts. Find out what evidence you may need to provide.  
4. Ask about additional savings. Review your car’s safety features, and consider signing up for usage-based insurance. If applicable, ask potential insurers if they offer low-mileage or pay-per-mile options. 
5. Purchase a policy. Compare rates from multiple companies, and choose a plan that fits your needs and budget.

The Future of Eco-Friendly Vehicles

Goldman Sachs Research projects that EVs will make up 50% of global car sales by 2035. As EVs continue to increase their market share, the cost of ownership and maintenance will decrease. EV owners might see lower MSRPs, more accessible parts and repair shops, and easier access to public charging stations. This overall decrease in cost will likely cause insurance companies to adjust their coverage options and allow for lower premiums. 

However, car trends change slowly. On average, people keep their vehicles for over 12 years, so widespread EV adoption will take time. In the meantime, look for ways to save through government incentives, rebates, and insurance discounts. 

The Price of Going Green

Buying a new car is not a decision to take lightly. You have to consider a plethora of factors, such as your driving habits, availability of local repair shops, and budget. EVs will help you avoid fluctuating gas prices, and with proper maintenance, your battery will last at least a decade. But be sure to factor in all potential costs, including your insurance premium. 

Do not be afraid to shop around and ask for discounts. Since companies charge more to insure EVs, try to lower your perceived risk in other ways. Opt for advanced safety features in your car, practice good driving habits, and limit your mileage if possible.