Top Factors That Affect Your Car Insurance Premiums
Updated: Feb 23
Car insurance rates are calculated using your personal information and company claim data, which means they use their own formulas to figure out how likely you are to file a claim or how much you could cost them. The riskier you appear, the more you will pay for car insurance. Your credit history plays a large part in the price of your premiums, but that’s just one of the many factors that go into determining how much you’ll pay for
How Are Premiums Calculated
Insurance begins with a base rate, which is based on broad categories such as: gender, geographical location, age, marital status, years of driving experience, driving record, claims history, credit history, previous insurance coverage, vehicle type, vehicle use, miles driven annually and deductibles. Each of these factors is weighed differently. For example, marital status does not affect your claim probability as much as your geographical location.
Every insurance provider weighs the factors differently, which is why you will get different quotes from different providers. An insurance provider’s claims data is also factored into the process. One provider may have fewer claims for the type of vehicle you have, and they may offer you a lower rate than another provider. Shop around to get the best price.
Your premiums may increase or decrease when there is a change in any of your risk factors. The first question your insurance company will likely ask you is where you live because your zip code is the start of your base rate. For example, if you live in a highly populated area, accidents are more likely to happen, and the chances of you filing a claim are greater. Living in a city is more expensive insurance-wise than living in a rural area due to the possibility of more accidents/claims. Insurance providers can also look up information regarding the number of stolen cars in your area, cases involving vandalism, the amount of claims and fraudulent claims, as well as damaging weather in your particular area. All of these combined help insurance providers determine the risks involved.
Age definitely matters when it comes to the cost of your insurance. The younger you are, the higher your rate is going to be. Young drivers are the riskiest to insure not only because they’re inexperienced but also because they’re considered to be more distracted. Rates decrease as you get older and might be a bit cheaper with other providers, but usually, your insurance premiums will drop up to 20 percent when you turn 25. Young and elderly drivers are typically the two groups who pose the most risk for accidents, and their premiums reflect that.
Your gender is also taken into consideration when you apply for insurance. Statistics vary for males and females, and data shows that males are higher risk, especially when they are young. Also, males tend to drive more miles than females and are more likely to speed, drive under the influence and fail to use a seat belt. Accidents involving male drivers tend to be more severe than female drivers, and that poses a bigger risk to the insurance provider.
Gender differences in fatality risk diminish with age. Usually by the time people enter their 30s, insurance premiums are comparable for both sexes. Once drivers reach their 60s, rates for males go up again due to crash statistics.
Marital status is another ranking factor for insurance premiums because statistically speaking, married couples are less of a risk than single people. And that includes those who are divorced or widowed. Married people have been found to be less active, which results in fewer claims and accidents. In fact, it’s twice as likely for single people to be in an accident than married couples. A married couple may also be eligible for discounts if they combine their policies, such as their cars and homeowners’ insurance.
Driving experience is very important because an inexperienced driver poses a significantly greater risk than one has been driving for a while. Age plays no part in this factor. It goes for everyone, regardless of whether you are 16 or 60. Teenagers are primarily the most inexperienced drivers, and their insurance premiums are high because of that. The more driving experience you have, the better off you are when it comes to paying insurance premiums.
Drivers who have had an accident or any type of violation on their record are considered higher risk and that, too, results in higher costs. Speeding tickets are considered minor violations, but they can affect your rates as much as 40 percent. Some companies will not raise your rate for a first ticket, but others may. Major violations can raise your rates up to 100 percent or more due to the loss of your discounts, etc., while multiple violations and/or accidents can render you uninsurable.
Insurance providers look at your driving record and will also gather reports on the claims you’ve made with them and previous insurers. If you have any at-fault claims, it will likely result in a surcharge. How much they have paid out is analyzed, and if the amount is significant, you may either face a surcharge or an increased rate. Your number of claims is also taken into consideration. If you have three claims in three years, you are considered risky to insure, so you will either face higher premiums or an insurance company may choose not to renew your policy.
Lower credit scores may also add up to a big difference in your premiums because statistics show that those with a credit score of 600 or less are more likely to file more claims, file inflated claims or even commit insurance fraud. So, the lower your credit score, the higher your rates. Credit scores also play an important role because statistics have shown that those with low credit scores are more likely to miss payments. Insurers might take a chance on you, but you may also be asked to pay the entire six or twelve month premium up front.
Insurance companies also look to see whether you’ve let your insurance coverage lapse in the past because that will make you higher risk. Having continual insurance history can help you get a better rate, and some companies offer loyalty discounts once have been with them for a few years.
Type of Vehicle and Use
The type of car you drive will be one of the main factors affecting your insurance costs. If data says that drivers with your model of vehicle have been in more accidents or filed more claims, then your rates will be higher. Other significant factors include: purchase price, theft rate, repair costs, accident rates and safety tests. Even if a car does well on a safety test doesn’t mean it will be cheap to insure. Some features on your car may actually make your insurance higher because of the cost of replacing those features if your car is wrecked or damaged.
Insurers also ask how you will use your car. If you drive to school or work, you are considered more of a risk than someone who only takes his car out once in a while. If you use your car for business, you have a higher chance of accidents due to the increase in driving time. Ask your insurance agent if your car is covered under your personal auto policy. If not, some companies require you to take out a separate commercial policy. The less you drive, the less risk you are to an insurance company.
Coverage and Deductibles
If you have higher coverage and deductible limits, it will cost you more since the insurer is taking a bigger risk on you. Minimums may not cover a serious accident, but you might be able to get by with a smaller premium if you can cut the deductible or coverage.
Obviously, you can’t control everything; however, you can keep a clean driving record, build a good credit score, buy a less expensive vehicle and choose the insurance coverage that best suits your needs. Even if your rating factors aren’t perfect, you can still get decent rates. Every insurance company sees your risk differently, so don’t hesitate to shop around for the best rate. Most importantly, keep your insurance company happy by posing less risk factors on the things you can control, and in the end, you and your bank account will be happy as well.