Car insurance costs are up 21%—but this is 'the worst thing to do' if you're looking for ways to save

Overall inflation was up 3.2% for the 12 months ending in February, the Bureau of Labor Statistics reported on Tuesday. The agency's inflation measure — the consumer price index — takes a wide variety of goods and services into account when calculating the overall number, and naturally, some prices rose over the past year more than others.

One cost pulling the average way up: car insurance, which rose 20.6% over the past 12 months.

What gives? Experts say a litany of factors are making it more expensive to insure drivers, from increasingly expensive repairs to more frequent accidents to an uptick in auto theft.

For drivers, the question isn't why rates are up across the board, but how they can keep their auto insurance costs from breaking the budget.

"There are always ways to save money, but one way not to do it is to reduce your coverage," says Loretta Worters, vice president, media relations at the Insurance Information Institute. "The worst thing to do would be to lower your liability limits."

Why auto insurance is getting more expensive

A quick review of what a basic car insurance policy might cover:

• Bodily injury liability: Required in 49 states and the District of Columbia, this coverage pays up to a certain amount to cover injuries to another driver or their passengers if you're at fault in an accident.
• Property damage liability: This coverage pays when you (or someone you've let drive your car) cause damage to someone else's property — typically someone else's car.
• Personal injury protection: This covers medical costs related to injuries you or your passengers sustain in an accident.
• Collision: These policies typically come with a separate deductible and pay out to cover damage to your car in the case of a collision with another car or with an object such as a tree, lamp post or pothole.
• Comprehensive: These policies cover damage to your car from pretty much anything besides a collision, including fire, earthquakes, hail or damage from animals. You're also reimbursed if your car is stolen.
• Uninsured motorist coverage: This covers the shortfall if you're in an accident caused by someone who is uninsured or underinsured.

Review that list, and you can see why it's getting more expensive for insurance companies to cover drivers. Rising vehicle thefts mean more frequent payouts on comprehensive coverage. A uptick in accidents in recent years, combined with rising medical costs, has made paying out injury claims more expensive.

And with more and more expensive parts going into modern cars, it's gotten pricier to replace and repair them when they get beat up. These are all costs that insurers pass on to consumers, says Mark Hamrick, senior economist at Bankrate.

"It's been the dirtiest little secret in the industry that the person who builds a $25,000 car will be the next billionaire," he says. "But the complexity of the components is unavoidable, unless they start making cars that don't have cameras and have cranks to roll the windows down again."

How to keep your car insurance costs down

Some reasons for rising premiums are unique to you, experts point out. If you got a speeding ticket, were at fault in an accident or picked up a DUI conviction, you can expect to pay higher premiums, according to Bankrate. You can also expect an upcharge if you add a teenage driver to your policy.

But if your car insurance costs are going up as a matter of course, there are a few steps you can take to bring things down.  

Raise your deductible

As with other types of insurance, auto coverage comes with a deductible — the amount you must pay out-of-pocket before coverage kicks in. By asking for a higher deductible, you can lower your monthly payments.

"You're going to have a bigger outlay [in the case of an accident], so you want to keep that in mind," says Worters. "But you can save money that way."

Shop around

Don't bother asking your insurer if they can lower your rate outright, as state anti-rebating and illegal inducement laws make it illegal, says Rachael Brennan, licensed property and casualty insurance expert at Policygenius. You're better off seeing if a competitor can offer you a better deal.

"The best way to save money on your car insurance is to compare quotes from multiple companies to make sure you are getting the lowest possible rate," she says.

Ask about discounts

That's not to say that your insurer is giving you the benefit of every discount you're eligible for. Price reductions are often available for older drivers, good students, members of the military, low-mileage drivers and safe drivers.

The latter criteria are easy to prove if you use a telematic device to broadcast your mileage and driving habits to your insurer. You'll also likely receive a discount for taking a defensive driving course, which you should aim to do every three years, says Worters.

Boost your credit score

Drivers with better credit scores receive more attractive rates. The difference between the average annual premium charged to those with "poor" ratings (below 580) and those with "excellent" scores (above 800) is more than $2,000, according to Bankrate.

Beware of decreasing your coverage

Decreasing your coverage will lower your premiums. But it could put you in a financially precarious position in the event of an accident.

Brennan recommends a liability coverage model known as 100/300/100 — $100,000 per person for bodily injury and $300,000 per accident, plus $100,000 in property coverage.

State minimums are commonly closer to 25/50/25, but doing so could leave you on the hook for a big bill in the case of an accident, says Brennan.

"Drivers who choose state minimum levels of coverage risk being underinsured in some situations, such as being at fault in an accident where you damage a rare or expensive car, or seriously injure someone to the point they require hospitalization," she says.

Want to make extra money outside of your day job? Sign up for CNBC's new online course How to Earn Passive Income Online to learn about common passive income streams, tips to get started and real-life success stories. Register today and save 50% with discount code EARLYBIRD.

Plus, sign up for CNBC Make It's newsletter to get tips and tricks for success at work, with money and in life.