Financial Well-Being Largely Guides How Americans Plan to Spend Their Tax Refund | Insurify

Last year, the IRS issued 102,122,000 tax refunds to Americans, averaging $3,052 per refund.[1] The national average annual cost of full-coverage car insurance was $2,144 in 2025, a slight drop from the significant rate increases recorded between 2022 and 2024. Auto insurance costs vary significantly by state, and refunds also vary, so while the national average federal tax refund could cover the annual cost of car insurance, that isn’t the case in every state.

Where the average refund can cover car insurance costs, it does so before any potential policy discounts. Since most insurers offer a discount for paying in full, drivers could save an average of 9% on a six- or 12-month policy. Paying for a policy up front can bring peace of mind, since it means drivers have covered an essential expense for at least six months.

Key findings

• The average federal refund can cover the annual cost of car insurance in many states, even ones with above-average premiums, such as Texas and Louisiana.

• Americans can save 5%–12% by paying for car insurance in full at the beginning of their policy. For a six-month full-coverage policy, that would be $53–$123 off a $1,068 bill paid in full. Regularly comparing costs can help drivers ensure they have the best deal.

• As of March, the average federal tax refund was $3,676, but 75% of survey respondents anticipate receiving $3,500 or less in 2026. Just 5% expect to receive more than $5,000.

• The average federal tax refund is 10.6% higher than it was at this time last year, according to IRS filing season statistics.[2]

How Americans plan on spending their anticipated tax refunds

Though 17% of survey respondents report they would spend their tax refund on a vacation, most are prioritizing paying off credit card debt, contributing to savings, investing, and making home improvements.

Survey respondents could choose up to three options, but 53% chose just one.

Generations approach spending their tax refund differently:

• 72% of baby boomers and 61% of Generation X respondents would put their refund toward just one goal.

• 45% of millennials and 34% of Gen Zers chose only one option.

• 32% of millennials and 40% of Gen Z selected three options for how to spend their refund.

Among those who chose one spending goal, 27% said they would pay off credit card debt, and 16% would build an emergency fund. But, among those who chose three spending goals, most selected three of these four: building an emergency fund (36%), paying off credit card debt (35%), making home improvements (32%), and paying for car insurance (32%).

Respondents who selected three goals also anticipate having more to spend: 46% of those who chose three goals anticipate receiving more than $3,000 for their tax refund, compared to just 22% of those who selected one goal.

Where the average tax refund could cover high car insurance costs

This year, 13% of surveyed Americans plan to dedicate at least part of their tax refund to paying for car insurance, and 41% said they’ve used a tax refund to pay for coverage before. The average tax refund in 2025 was $3,052, but the amount and how far the money goes vary by state.

Auto insurance costs also vary significantly by state, but in 34 states, the average federal tax refund could cover the median annual car insurance premium.

Drivers can typically pay for car insurance monthly, every six months, or every 12 months, though some insurers offer even more flexible or customizable payment options. Shopping around and comparing quotes at renewal can help find lower rates, but many insurers also offer 5%–12% discounts to drivers who pay for their policy in full, according to Insurify data.

Interesting Information

Two-thirds of surveyed Americans pay monthly for car insurance, versus 26% who pay in full for a six-month policy and 7% who pay in full for a 12-month policy. Respondents who pay monthly cited convenience as the top reason they pay that way, while those who pay in full for a six- or 12-month policy said it’s cheaper.

Here are the 10 most expensive states for car insurance where the state’s average federal tax refund can cover an annual policy in full.

1. Texas

• Average annual cost of full-coverage car insurance: $2,470

• Average federal tax refund amount: $2,622

Texas drivers’ reliance on rural roads plays a large part in the state’s high car insurance rates.

• The majority (90.4%) of daily vehicle miles traveled statewide are on rural roads, according to the Federal Highway Administration (FHWA).[3]

• Certain stretches of rural highways also have an 85 mph speed limit, the highest for any road type in the U.S., according to the Insurance Institute for Highway Safety (IIHS).[4]

• Nearly half (43%) of all roadway deaths in the U.S. happen on rural roadways, despite just 20% of the population living in those areas, according to the U.S. Department of Transportation.[5] Factors like these can cause more frequent or severe claims, which can drive up car insurance rates.

Texas also has a high vehicle theft rate of 123.8 per 100,000 people, according to Insurify’s stolen cars report. Severe weather losses can add up, too. Flood and hail damage are the largest drivers of auto insurance claims in Texas, according to the Texas Coalition for Affordable Insurance Solutions.[6]

2. Louisiana

• Average annual cost of full-coverage car insurance: $2,370

• Average federal tax refund amount: $2,483

The average Louisianan also pays higher car insurance rates, but Insurify data shows those rates are going down. Louisiana’s rates fell by 15% in 2025, and Insurify projects another smaller decrease in 2026.

But while rates are going down, bodily injury claims remain high, and those claims are driving above-average costs statewide, according to the Louisiana Department of Insurance.[7] Louisiana drivers file more than twice as many bodily injury claims per capita as the national average, according to a May 2025 press release.

High litigation costs can drive up auto insurance rates when insurers pass legal expenses on to policyholders through higher premiums, according to the Insurance Information Institute (Triple-I).[8]

3. Mississippi

• Average annual cost of full-coverage car insurance: $2,063

• Average federal tax refund amount: $2,439

Mississippi has the highest uninsured motorist rate in the country, at 28.2%, according to the Insurance Research Council (IRC).[9] More uninsured motorists on the road increases the likelihood that an uninsured driver could cause an accident. That can increase insurance claims for uninsured motorist coverage and lead to higher overall risk, which shows up in insurance premiums.

Mississippi also has the lowest average credit score in the country: 680, well below the national average of 715, according to Experian.[10] Most states, including Mississippi, allow insurers to use credit history to help determine auto insurance rates, which can also contribute to higher premiums.

Still, car insurance costs in Mississippi are below the national average and relatively stable. Insurify projects a mere 0.3% rate increase in 2026.

4. Missouri

• Average annual cost of full-coverage car insurance: $2,061

• Average federal tax refund amount: $2,068

Missouri’s average federal tax refund just barely covers the median annual cost of car insurance, and Insurify projects another 0.7% increase in 2026.

Like Mississippi, Missouri also has a high uninsured motorist rate of 20.7%, which can drive up claims costs and premiums statewide.

Climate and theft risk may increase claims frequency in Missouri. Much of the state, including urban areas like St. Louis and Kansas City, experiences frequent hailstorms, according to the National Risk Index (NRI).[11]

Missouri also has a high vehicle theft rate of 142.2 vehicles stolen per 100,000 people, according to an Insurify analysis of National Insurance Crime Bureau data. More frequent damaging hail events and vehicle thefts can lead to higher comprehensive claims costs and insurance premiums.

5. Washington

• Average annual cost of full-coverage car insurance: $1,974

• Average federal tax refund amount: $2,265

Like Mississippi and Missouri, Washington drivers pay below the national average for car insurance. Fewer climate risks likely to damage vehicles may help keep rates down. But where auto insurance costs fell by 6% nationwide, costs in Washington increased by 2% in 2025, and Insurify projects a 1.8% increase in 2026.

Traffic congestion may contribute to higher rates as well, since it increases the risk of accidents. Seattle is among the worst 25 cities in the world for traffic congestion, according to INRIX’s Global Traffic Scorecard.[12]

Washington also has high uninsured motorist and auto theft rates, which can further increase claims costs and trickle down into premiums.

6. Oklahoma

• Average annual cost of full-coverage car insurance: $1,971

• Average federal tax refund amount: $2,260

Oklahoma’s below-average car insurance rates mean the average federal tax refund will cover an annual premium with cash to spare. The state has a below-average uninsured motorist rate and a moderate vehicle theft rate, which may help keep premiums lower. Rates have also stabilized in the last year, with Insurify projecting a modest 1.2% increase for 2026.

A few factors may push insurance premiums higher. Much of Oklahoma experiences frequent hailstorms and tornadoes, which can damage vehicles and increase the number of comprehensive claims. Oklahoma is also one of 10 states with 80 mph or higher speed limits on rural interstate highways, increasing the risk of severe accidents and expensive collision claims.

7. Pennsylvania

• Average annual cost of full-coverage car insurance: $1,860

• Average federal tax refund amount: $2,083

Pennsylvania drivers pay below-average car insurance rates, despite several factors that can lead to higher costs. For example, Philadelphia ranks No. 5 worst in the world for traffic delays and congestion, according to INRIX. Elevated traffic levels can increase the risk of accidents, driving up claims costs and premiums.

But it’s not just urban-area factors influencing rates. Pennsylvania is among the states with the highest frequency of animal strike claims, according to the Highway Loss Data Institute.[13] In fact, eight of the 10 counties with the highest frequency of animal strike claims are in Pennsylvania, which could mean higher comprehensive coverage claim costs for insurers.

Auto insurance costs remain stable, however, and Insurify projects a minimal 0.4% rate increase in 2026.

8. Arizona

• Average annual cost of full-coverage car insurance: $1,798

• Average federal tax refund amount: $2,189

Arizona’s below-average car insurance costs mean drivers could cover an annual premium with the average federal tax refund and have cash left over for other expenses. The state has a below-average uninsured motorist rate and a moderate vehicle theft rate of 90.1 thefts per 100,000 people, which could contribute to the state’s lower average premiums.

But weather-related comprehensive claims may elevate car insurance costs in Arizona. Much of the state faces an increased risk of wildfires, inland flooding, and hailstorms, according to FEMA. Since comprehensive insurance covers vehicle damage from severe weather, more frequent events could raise costs. Insurify projects a small 0.8% increase in 2026.

9. Montana

• Average annual cost of full-coverage car insurance: $1,798

• Average federal tax refund amount: $1,974

Montana drivers pay below-average car insurance rates, but a lower average federal tax refund means it will just cover an annual policy. In all, Montana is a relatively low-risk state. The uninsured motorist rate is low at 7.2%, and the auto theft rate is also below average, at 65.8 thefts per 100,000 people. The state also faces few climate risks likely to cause severe vehicle damage.

Road danger may be higher on rural highways. Montana is among the 10 states with a speed limit of 80 mph or more on rural interstates. It also has among the highest frequencies of animal strike claims, according to IIHS. But with no major factors driving increases, Insurify projects a 0.3% rate decrease in 2026.

10. Illinois

• Average annual cost of full-coverage car insurance: $1,786

• Average federal tax refund amount: $2,284

The average federal tax refund easily covers the average annual cost of car insurance in Illinois. Drivers pay below-average rates, but Insurify projects a small 0.4% increase in 2026.

Urban area drivers may see higher rates, however. Chicago has some of the worst traffic congestion in the world, and INRIX ranked it first among the cities with the highest traffic delay times in the Americas. On a global scale, Chicago ranks second behind Istanbul, Turkey, for the highest traffic delay times.

Dense traffic can lead to accidents and more frequent collision claims, driving up premiums. The state’s high vehicle theft rate may also contribute to higher costs.

Where the average tax refund doesn’t cover the cost of car insurance

Car insurance costs surpass the average federal tax refund in 17 states. The five most expensive locations for car insurance are Washington, D.C., Maryland, Rhode Island, Michigan, and New York, according to Insurify’s auto insurance report.

The average federal tax refund in D.C. is $2,383, but the average annual cost of car insurance there is $4,017 — a $1,634 difference. Insurance costs in Washington, D.C., increased by 18% in 2025. Factors like traffic congestion, high population density, and a high share of uninsured drivers all contribute to its elevated premiums.

Rhode Island, Maryland, and Michigan also have differences exceeding $1,000. The factors driving higher rates in those states include increasing coverage requirements, severe weather, and, in Michigan, a no-fault insurance system.

The White House predicts higher refunds this season thanks to tax cuts

The average tax refund exceeded $3,600 in March, accounting for 45% of the anticipated total number of returns.[14] The U.S. Department of the Treasury is claiming it as a win for the tax provisions in the One Big Beautiful Bill Act (OBBBA). Nearly half of the already-filed returns claimed at least one of the tax cuts included in the bill, according to the Treasury.

So far, 15.5 million have claimed no tax on overtime, 9.2 million have claimed the enhanced deductions for seniors, and 3.5 million have claimed no tax on tips.

However, if this season follows a trend similar to last year’s, the average and the percent increase will likely drop by the end of the season.

As of March 6, the average refund amount was $3,676 — up 10.6% from the same week in 2025, according to IRS filing statistics. But this time last year, the average refund amount was $3,324, and by the end of the IRS’s fiscal year in October, it had dropped to $3,052.

The early season average tends to be higher because taxpayers who expect a refund tend to file early, while those who know they’ll owe taxes often wait until the April filing deadline, according to tax calculation tool FiscalFold.[15] So, while OBBBA changes may be leading to higher average refunds, filing statistics won’t reflect the true season average for a few months.

Some see a different reason for the jump in tax returns. Kevin Thompson, CEO of 9i Capital Group, told Newsweek that he’s already reviewed multiple filings this season and found that refunds are more likely from over-withholding than from tax code changes. He said that comparing returns in the same income bracket shows minimal changes.[16]

Tips: How to make the most of a tax refund

General economic uncertainty may be influencing how Americans plan to use their refund, but financial security is likely a contributing factor. More than a quarter (27%) of respondents earning between $100,000 and $150,000 would use their refund to take a vacation, while just 14% earning between $30,000 and $100,000 would do the same.

While tax refunds may feel like an exciting financial windfall, they were the taxpayers’ money all along. If a taxpayer receives a refund, it means they overpaid their taxes that year, and the government is paying them back. Unless taxpayers prefer to overpay rather than risk owing taxes, more careful calculations mean they’ll see that money in their bank accounts throughout the year.

But for those who do receive a refund, especially those experiencing financial instability, putting it toward a debt, savings, or an essential expense can help build security.

“A tax refund is one of the few moments in the year when households may receive a meaningful lump sum, and how they allocate that money can have a real impact on their financial stability,” said Chang Jo, chief financial officer at Insurify. “The most effective approach is to prioritize expenses that protect you from higher costs down the road, things like paying down high-interest debt, building an emergency cushion, or covering essential annual expenses.”

Car insurance is a good example of a basic ongoing expense, Jo said.

“When consumers can pay for a full policy up front, it saves them money in the long run and removes the risk of missing payments during the year,” he said. “Treating a refund as an opportunity to lock in necessary costs can turn a short-term windfall into longer-term financial resilience.”

Methodology

Insurify’s data scientists examined more than 197 million car insurance quotes in its proprietary database, quoted via integrations with partnering insurance companies. Driver applications originate from all 50 states and Washington, D.C., and include information on the exact coverage specifications of each driver’s quoted policies.

Insurify excluded Alaska data due to lower quoting volume.

The premiums in this report reflect the median insurance cost for drivers between the ages of 20 and 70 with clean driving records and average or better credit, unless otherwise noted. Full-coverage premiums correspond to policies with bodily injury limits between state-minimum requirements and $50,000 per person, $100,000 per accident; property damage coverage between $10,000 and $50,000; and comprehensive and collision coverage with deductibles of $1,000.

To project how much the average driver will pay for full-coverage insurance by the end of 2026, Insurify data scientists analyzed the latest pricing trends in each state as well as expected industry-level loss ratios in 2025. They then used this information to project rate-change magnitude in every state through the end of the year. Broadly, Insurify forecasts that insurers’ financial strength and heightened competition for customers will mitigate increased actuarial losses in 2026.

The national average federal tax refund amount reflects the amount the IRS published in its October 2025 filing season statistics. Insurify calculated the state average refund amounts using data from column three, “Individual income tax,” in the IRS’s Table 7: Number of Refunds Issued, by Type of Refund and State, Fiscal Year 2024, and Table 8: Amount of Refunds Issued, Including Interest, by Type of Refund and State, Fiscal Year 2024. To be consistent with the IRS’s stated methodology for calculating the national average, Insurify excludes undistributed refunds and refunds from the Advance Premium Tax Credit/Cost Sharing Reduction/Basic Health Program.

For media inquiries or questions about our study, please contact the author here.