A California driver explains their family's experience,

“We found that the legacy insurance companies were considerably more expensive than other options for insuring our Tesla. We switched from a legacy company to Costco for our insurance, and we only pay $800 per year to insure our Model Y with great coverage. Tesla itself offered similarly-priced insurance, but we’re not totally convinced it’s the right decision over a more neutral third party.”

Why EVs Cost More to Insure - For Now

On average, it costs about 25% more to insure an electric car than an equivalent gas car. There are several factors contributing to the higher premiums. Perhaps the most straightforward reason, EVs tend to have a higher sticker price than combustion vehicles, and more expensive cars are more expensive to insure. Computerized, high-tech parts, frequently used in EVs, cost more to repair and replace than traditional parts that are produced in mass by budget auto parts manufacturers. But, a lot of it is economies of scale. EVs are still pretty rare on the road, so the demand and production of replacement parts has not yet scaled up. There are also fewer shops and technicians with the experience and training to repair electric vehicles. Qualified facilities may charge more for their specialized services.

A specialized EV mechanic has certifications and tools to check high voltage batteries
A specialized EV mechanic has certifications and tools to check high voltage batteries

Another issue is at the very heart of EVs: battery packs account for about 50% of an EV’s initial cost and because they are still new technology, it can be hard to assess or repair one after an accident. Even if there is no obvious damage to the battery in an accident, an insurance company doesn’t have a cost effective way to confirm that the battery is still safe. Automakers are also reluctant to share diagnostic data on their batteries with insurers. 

This leads to cars that have been in even minor collisions being totaled.

Why? This happens because insurance companies are worried about being liable if a battery they decided was safe has an issue in the future. It is less risk to send the whole car to the scrap yard. One salvage company estimated that nearly 95% of the EV batteries stored in their yards are undamaged and could be reused. 

10 cars showing the percentage that have usable batteries
Out of every ten electric cars in a junk yard, there are 9.5 batteries that have reuse potential

While this is great for specialty shops that can assess and use these packs for battery replacements, it is not an efficient use of resources.

Some auto manufacturers, like Ford and GM, have tried to make their batteries easier to repair, while others, like Tesla, have committed to impressive structural batteries that are virtually impossible to repair. In recent years, the U.S. car insurance industry has lost money due to the COVID pandemic and supply chain issues increasing repair costs by 30 - 40%. All these factors, combined with the insurance industry’s tendency toward caution in the face of innovation, result in higher premiums today for electric vehicles. Hopefully, this changes as EV adoption becomes more mainstream and insurance companies are able to estimate risk better. 

A different California driver had originally switched to Tesla insurance because it was cheaper, only to find two years later, Geico was more competitive with a quote that was a few hundred dollars less. 

Still, EV drivers save money

Despite possible higher insurance costs, EV drivers still save money over the life of the vehicle. A recent study found 90% of U.S. households could save money on transportation costs by driving electric vehicles. Much of that savings is in fuel costs, since electricity costs are lower and much more stable than gasoline costs. Savings work out to roughly $1,000 every year. EV drivers can also save 50% on repair and maintenance costs over similar gas vehicles.

Meanwhile, it only costs about $44 more per month to insure an electric vehicle.

Even factoring in the higher sticker price and insurance costs of EVs, foregoing a gas powered vehicle and choosing an EV can save drivers $6,000 - $10,000 over the lifetime of the car. If you’re interested in long-term savings, an EV may be the way to go.

EV charger pouring money into a piggy bank

Some Insurance Companies Incentivize Green Vehicles

Still, it’s nice to save in the short-term, and fortunately there are several ways to reduce your monthly insurance payment. The number one tip is to shop around. Insurance rates vary by vehicle model, insurance company, and state, so you’ll want to hunt for the best deal. Some insurers offer discounts for electric and hybrid vehicles, though you’ll likely have to ask for a quote before you can find out how much you can save (Note: discounts also vary by vehicle model and state).

Many insurance companies offer discounts for paperless billing, safety features, good driving, and even autopay. Since EVs come with many driver assistance features, you may be able to save, especially if you are trading in an older car.

One Tennessee family pays only $10 more a month for a new Mustang Mach-e than for their 2008 Honda Civic - likely because of the safety features in the Mach-e. On the other hand, a driver in the Mid-Atlantic saw premiums more than double when they traded in a 2010 Prius for a 2023 Ioniq 5. 

Some insurers have programs to get real-time feedback on your driving habits that can reduce your premiums (assuming you drive safely). Drivers with good driving records can save a lot of money, and you can save with a good credit rating as well. Pay-per-mile plans and bundled plans can also be more affordable. There’s always the option to raise your deductible or pay in an annual lump sum to save even more.

Insurance premiums may be slightly higher for EVs than similar gas cars, but an electric vehicle will still save you money in the long run and there are many ways to reduce those monthly insurance costs to save you money in the short-term.

Written by River James, a writer, editor, and researcher based in San Diego, California. For her personal thoughts and musings, check out her Substack.