Why Does Auto Insurance Cost So Much?
The cost of Auto Insurance is crazy! Why is it so high? Companies that sell auto insurance are in business to make a profit so this is how you figure out the price:
Cost of Claims + Company Expenses + Company Profit = Price
So if a company issues insurance policies for 10,000 cars and those drivers have 1000 claims that cost $4000 each then the Cost of Claims = $4,000,000
Same company has employees to pay, TV ads to run, papers they print stuff on, a nice website and various other expenses that all add up to $1,000,000 per year, these are the Company Expenses.
Every Insurance Company is in business to make a profit so they add anywhere from 10-20% to the price so they make money.
Cost of Claims ($4,000,000) + Company Expenses ($1,000,000) + Company Profit (10% x $5,000,000 = $500,000) = Price ($5,500,000 divided by 10,000 cars =