How Tariffs Could Impact Car Insurance
You can’t watch a newscast without someone talking about tariffs. There are some reported concerns that the price of goods will increase. Products that are at the forefront of tariffs are automobile parts. With the possibility of prices on some auto parts increasing, the cost of one service everyone needs may also increase. Auto insurance rates may increase because of tariffs. But is this true, and if so, how much will rates increase? A Study on Tariffs and Car Insurance Rates
Even under normal circumstances, an increase in an auto’s cost affects car insurance rates. A $50,000 car is going to cost more to insure than a $20,000 car. In other words, vehicles that cost more will have higher repair costs and, therefore, require higher insurance rates. According to the White House, the new tariffs that went into effect on April 2, 2025, are for two aspects of vehicles. The first is 25 percent on imported passenger vehicles such as sedans, SUVs, crossovers, minivans, cargo vans, and light trucks. The second is 25 percent on key auto parts such as transmissions, powertrain parts, and electrical components.
How Much Could Insurance Rates Increase?
For example, according to the Kelley Blue Book, a 2020 Ford Escape SEL transmission replacement currently costs between $4,952 and $7,505. In theory, with a 25 percent tariff on imported parts, these numbers would be 25 percent higher. If the transmission is damaged in a collision, the insurance company would be forced to absorb the higher cost.
Estimated Costs for Insurance Companies
Insurance companies are estimated to pay between $27 billion and $53 billion extra for claims in the next 12–18 months. They’ll be passing that increase on to their insureds.
State-Specific Premiums
Newswires reports that tariffs could add $324 to the average American’s car insurance costs by 2026. This would bring the average annual full-coverage car insurance premium to $2,759. However, various states will be impacted differently. For example, New York is anticipated to have the highest increasing year-over-year costs. Premiums are expected to rise by up to 24 percent, or $911.
State-Specific Premium Increases
| State | Year-over-Year Premium Increase | Estimated Annual Premium |
| — | — | — |
| New York | 24% | $2,911 |
| California | 18% | $2,659 |
| Florida | 15% | $2,531 |
| Texas | 10% | $2,385 |
When Will Increased Premiums Affect Drivers?
Americans will probably not see tariff-driven rate increases until the end of the year. That’s because raising rates is a slow-moving process. Insurance companies would have to sustain losses due to the increase in the cost of parts for repair. Then, the insurers must prove to regulators that their losses outpace what they make in premiums.
Regulatory Approval
These are state regulators, not federal. So, insurance companies must deal with regulators on a state-by-state basis. Most state regulators aren’t going to approve of premium increases based on insurance companies’ anticipation that tariffs would increase costs.
Ways to Curb the Premium Rate Increases
You can take control of what you pay for auto insurance, but it may take a little sacrifice. There are several ways to cut your insurance premium.
Increasing Your Deductible
One way is by increasing your deductible. It’s old but good advice. And although you’re increasing your potential for out-of-pocket repairs, you could ultimately save on your premium. If you’re a safe driver, consider increasing your deductible from $500 to $1,000.
Paying for Repairs Out of Pocket
If you have an accident that doesn’t involve another vehicle, consider paying for the damage to your vehicle out of pocket. This is only for minor damage where no one is injured.
Working with an Independent Agent
For example, if you don’t want to shop your insurance around on your own, consult with an independent insurance agent. They represent several companies and will shop your insurance for you. There may be some insurance companies not on your radar that may give you a good deal. The independent agent can find them for you.
Reporting Your Mileage
Report your mileage if you drive under 10,000 miles per year. Insurance companies factor in the amount of driving when determining premiums. Some companies have verified mileage programs. You’ll receive savings by reporting your odometer reading on a regular basis.
Conclusion
The impact of tariffs on car insurance rates is a complex issue. While tariffs may increase the cost of auto parts, the actual impact on insurance rates is still unclear. However, by taking control of what you pay for auto insurance and exploring different options, you can potentially save money. Remember to always shop around and compare insurance quotes to find the best deal for your needs.