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Although it may not feel like it, there is logic and reasoning behind auto insurance rates. It’s important to know how these rates are determined when looking for the best rates possible. Some considerations are well known, while others may not be. For example, why do auto insurance companies ask for Social Security numbers?
Some factors that determine insurance rates can’t be controlled, but others can. For example, a driver who is determined to be a higher risk will have higher insurance rates. Knowing this can remind drivers of the importance of driving safely.
Let’s take an in-depth look at how auto insurance rates are calculated and why it matters to you.
The Most Important Factors Behind Auto Insurance Rates
The price of a person’s car insurance rate is determined by their rating factor. The rating factor is an individual characteristic of a customer that will determine the cost of the premium. The less risky a customer’s rating factors are, the cheaper their insurance policy will be.
Some of these factors are more important than others. The customer’s driving record and type of vehicle, for example, have a greater impact than their gender or marital status.
#1 – Age
Age is one of the biggest factors when it comes to determining auto insurance rates. Teen drivers typically have the highest insurance premiums. Insurance companies view younger drivers as high risk due to a lack of experience. Studies show that car crashes are the second-leading cause of death for teens in the U.S.
In most cases, male teen drivers have higher premiums than female teen drivers. Insurance companies view male drivers to be at a higher risk than female drivers, and this is because data shows that men are more likely to get into car accidents than women.
Age becomes a less important rating factor at the age of 20, and even less important at 25. Car insurance premiums reach their low point when a driver hits their mid-50s, then rises again for drivers who are 70 years and older.
#2 – Driving Record
Car insurance companies see a driver’s record as an accurate predictor of their future driving performance. Therefore, drivers with an unclean record will have higher premiums than drivers with a clean record.
If you have traffic violations or a car accident on your record, you’ll have a higher car insurance premium even if you were not at fault. However, your policy will lower as you go several years without another incident. Many companies also provide a bonus discount for every year you go without filing a claim on your policy.
#3 – Vehicle Model
The kind of car you drive is another large factor in insurance costs. Expensive vehicles typically cost more to insure since they are more expensive to replace or repair.
Some cars are more prone to damage than others or are more popular among car thieves, which will also increase your premium.
This is why it’s important to compare insurance rates when shopping for a new vehicle. Purchasing a vehicle that costs less to insure can save money in the long run. Cars with safety features such as anti-lock brakes or anti-theft devices can qualify for lower insurance premiums.
#4 – Credit History
Credit score is often overlooked as a major rating factor. Drivers who have low credit scores file more claims than those with higher credit scores. These claims are typically more expensive claims than drivers with good credit.
Credit score as a rating factor is fairly controversial, as many feel that credit history has no impact on how a person drives. Getting multiple quotes and changing your coverage type can help you find the best car insurance rates if you have poor credit.
#5 – Location
Location is one of the rating factors drivers don’t have huge control over unless they want to uproot their lives and change locations. A driver’s state, city, and even ZIP code can influence how much they pay for car insurance.
Drivers in urban areas will typically pay more than those in rural locations since there are higher risks of car accidents, vehicle theft, and vandalism. This is especially true in urban areas that have a high crime rate.
Since there isn’t much a driver can do about their location, it’s one of those situations where shopping around for insurance and discounts is the best way to find a lower premium.
#6 – Driving Frequency
Drivers who log more miles are statistically more likely to be involved in a car accident, so the average number of miles driven per year is another big factor. Drivers who drive fewer than 12,000 miles a year can qualify for lower rates.
Some companies even offer pay-per-mile car insurance policies, where the driver will pay a base amount monthly as well as a per-mile charge for each additional mile driven.
#7 – The Insurance Company Itself
Naturally, the biggest factor in auto insurance costs is the company you go with. Rates vary widely from company to company, and some companies may not offer discounts that could specifically benefit you.
While there are many factors you can control when it comes to your policy, sometimes the easiest change is to simply change who your provider is.
Other Rating Factors Behind Auto Insurance Rates
As previously mentioned, some rating factors can still affect your premium even if they aren’t as important as some of the other factors. They include:
- Coverage limits
- The amount of your policy deductible
- Types of coverage
- Where you park your vehicle
Marital status is a pretty insignificant rating factor. Although there is a difference between car insurance rates for married, divorced, single, and widowed drivers, the difference is minimal.
Tips for Lowering Your Auto Insurance Premium
Many auto insurance companies offer discounts, and these discounts are determined by location and insurance companies.
They are also determined by your individual rating factors. If you’re a homeowner, pay your insurance premium upfront, or have a clean driving record, you can qualify for discounts.
Here are some other common insurance discounts:
- Anti-theft device
- Bundling policies
- Certain professions
- Good driver
- Good student
- Low mileage
- Loyalty
- Military
- Multi-vehicle
And of course, the best way to find an affordable policy that works for you is to shop around and compare rates. Many people end up having too much coverage on their policies that they may not actually need.
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Luke Williams writes and researches for the auto insurance comparison site, AutoInsurance.org. His passions include best practices for insurance and helping others understand how it’s calculated.
