The wallets of drivers across the country are under siege by sky-high car insurance rates as most major carriers continue to drive up their prices.

In one state, an amazing 8% of the average car owner's annual salary goes to insurance premiums. That figure tops out the top 10 states list. Hint on the top state: It's in the Midwest.

For two years in a row, many major carriers such as GEICO, Liberty Mutual, Allstate (NYSE: ALL) and Mercury Insurance have raised their rates as much as 6.9%. One reason for the continued hikes is car insurance fraud.

Claims turned over to the National Insurance Crime Bureau (NICB) to investigate for potential fraud rose by 7% in 2011 following a 13% increase in 2010. NICB data says questionable car insurance claims for hail damage jumped a whopping 103% -- with faked damage and 'suspicious hit while parked' topping the list of faked car insurance-related claims. The NICB estimates car insurance fraud annually tacks on $200 to $300 to your premiums.

So who pays the most?

Residents of the state with the highest car insurance rate of any in America shell out an average 8% of their annual salary on car insurance premiums, according to data from Drivers in this state have an extra $175 fee tacked on to every car insurance policy, regardless of a driver's claim history, driving record, etc. Households that insure two or more cars must pay the fee for each car.

The 'honor' of ranking No. 1 in terms of car insurance cost goes to residents of Michigan.

'The reason is that there are a lot of people without insurance there, and that hikes up claims and subsequent payouts by carriers,' said Josh Anish, spokesperson for the website, which enables comparison shopping among car insurance providers. That's because if a driver gets into a wreck with an uninsured motorist, any damages, medical bills, etc., sustained by the insured driver will go through his insurance company -- no matter whose fault the accident is.

Another factor in Michigan drivers' hefty car insurance rates is the steep and unique 'catastrophic injury fee.' Since 1978, the state has collected the fee, which has ballooned to $175 per year in 2012, to fund a generous benefit for medical coverage. It provides unlimited lifetime medical benefits for catastrophic injury claims over and above the state cap of $500,000 of required personal injury protection (PIP) coverage, the portion of car insurance that covers medical expenses. Michigan is a no-fault car insurance state, which means PIP coverage kicks in regardless of who was at fault in an accident, explained Loretta Worters, spokesperson for the Insurance Information Institute.

Data compiled by shows these states makes up the list of the top 10 where drivers pay the most for car insurance, measured by the percentage of median household income that it costs:


It's important to be aware of what you're getting when you pay for car insurance instead of just automatically renewing your payment each month.

'One thing you really need to do is review your coverage, especially if you have an older car,' said John Egan, managing editor of

If you don't have a car loan, you may be able to drop the comprehensive and collision portion of your car insurance coverage, the coverage that pays to repair your car if you're in an accident or if it's vandalized.

'You may be able to save a lot of money by dropping certain coverages that don't make sense for the type of car you're driving,' Egan said.

The Investing Answer: Plunking a for-sale sign in your front yard and moving to a state where car insurance is cheaper probably isn't an option. So the next best thing is shopping around for car insurance to make sure you're getting the best bang for your buck and comparing what you're paying for with what you could get from another car insurance company.

'Consumers have some power when it comes to how much they pay for car insurance,' Egan said. 'But a lot of people do not shop around and they very well could be paying more for their car insurance than they have to because of that.'

For effective comparison shopping, keep your policy on hand to compare 'apples to apples' coverage. Then start shopping. Check with insurance websites and insurance agents or brokers for quotes.