Inflation continues to rise throughout the Americas after several months that seemed to have given us a lull. However, now we are once again seeing its effects on one of the most relevant and frequent fixed expenses: your car insurance. Pay attention to what the price is going to do over the next few months now that we have learned about the “ghost taxes” hidden in your policy.
Why is your car insurance so expensive? The taxes you don´t know and you´re paying
When choosing car insurance, people look on quote amounts mainly than the other aspects of car insurance e. g. coverage and deductibles. But that is anyway just one of the items in the total cost of owning and using a vehicle. In addition to taxes, fees, the driver will pay extra which can eventually influence the affordability of driving.
Such “ghost taxes” as well as additional costs may not be seen at first, but when all reckoned up, they may turn out to be significantly high, therefore, they should be a priori accounted for in a car-purchase budget. Seeing to these further aspects may ensure them to change their decision to an informed one.
While premiums are the most important, look at total costs including transport costs is also well-warranted. With the knowledge of the additional taxes, the government fees, fines, maintenance and other possible hidden costs, owners can only have an exact budget and an accurate cost estimate beyond the moment they buy the car.
Three “ghost taxes” anyone is talking about: up to 20 % in your car insurance costs
Car insurance is subject to certain taxes just because it is a financial product, of which many do not know what they are. We will show you the three that apply in most cases (because there are always exemptions) and the approximate percentage that they add to your annual premium, in this case it does not matter if it is financed.
Insurance Premium Tax
A common tax on insurance companies, is the insurance premium tax. However, it is the state law that clarifies the numbers that ranges between 1% and 4%. In more detail, say, your car insurance policy for a year would cost you $1,000, and your state had a 2% of the insurance premium tax, the insurance company will pay $20 for you.
Among all insurance companies, the state government collects the premium through a certain percentage of every premium made. Such is a cost that eventually, the consumer will need to shoulder through increased insurance rates.
Federal Excise Tax
The federal excise tax is imposed on certain items, and these products include vehicles, being sold in the United States. When you purchase a new vehicle from a dealer, you’ll have the federal excise tax added, which results in several hundred dollars in all.
Through a good bit of its past, the excise tax level set at 8% of the sales price. However, in 2021, it was sloped down to 6 percent, almost double the number compared to the previous year. 2% is allocated as part of pandemic relief and acts as a lifeline.
State Sales Tax
Car sales tax is mostly charged by the government as it applies when a consumer buys a new or preowned car from a dealer. The amount can be widely different from state to state, and right now we know there is a median of 0% in Oregon, the state with no sales tax, to as low as 10% in some areas.
Let’s say you buy a $20,000 car, one that has a 6% sales tax in the state. So, it is an added cost of $1,200 you will pay when you purchase the car. Moreover, some states taxes the personal property ownership as a means of “sales tax” when leasing a new car.
As you can see, these “ghost taxes” are making your car insurance even more volatile, after a few months (or rather, years) in which it kept skyrocketing. The challenge now is to control the rise and prevent it from being as steep as it was during 2022. Who will feel it most? As far as we have learned, owners of EVs and FCEVs, for reasons you already know.
