What Determines Auto Insurance Rates?

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Insurance premium calculation is a complex science.  Insurance companies are playing a game of risk trying to balance offering customers the cheapest price, while still being able to protect their bottom line in covering claims.  Each company has their own evolving algorithms for determining auto insurance rates.  Let's look at several factors that insurance companies use for determining how much customers will pay for coverage.


Where you live plays an important role in the calculation of how much you will pay for insurance.  Those living in cities will pay much higher rates than those in the suburbs or rural areas, because the city poses bigger risks.  In a city, your vehicle is more likely to be stolen or vandalized.  You are also more likely to get into an accident in a city, while driving through traffic and crowded spaces.  Some locations, regardless of size, have a higher percentage of accidents which can lead to higher rates.


It’s expected that age will be a factor.  Younger people, who are just getting behind the wheel, are responsible for a lot of car accidents.  As such, adding a teenager to your insurance policy can cause quite a hike in insurance rates.  This initial increase tends to level off around the age of 25-30, where rates go back down.  But for those 65 and over, rates will begin to increase again.  Seniors, like younger people, get into a fair amount of accidents.  To cover this risk, premiums increase, and will likely continue to increase for seniors as they get older and older.


Men have the reputation of being riskier drivers, which is validated by accident reports showing them to be more likely to get into an accident or get a ticket.  As such, men tend to pay more for car insurance than women.

Marital Status 

Insurance companies will look into your marital status when determining your insurance premium.  They have found that married people have less claims.  Those who aren't married are more likely to get into an accident.  As such, their insurance reflects a higher price.  So if you get married, be sure to update your insurance policy to possibly unlock a better rate on your coverage.


The wear-and-tear you put on your car affects the cost of insurance.  Obviously, those who drive more have a better chance of getting into an accident--so insurance companies want to know the purpose for your vehicle use.  They will commonly ask if you drive for business, commuting, or leisure.  Those just using for leisure tend to put on less miles.  In order to provide a more accurate quote, the company might even ask you, "How many miles do you drive per year?" Be sure to answer honestly.  If you put down a very low number just to get a cheaper policy, you could run into some problems.  The insurance company would be within their rights to reject a claim, especially if you were commuting to work when you said the vehicle would be used for "leisure" purposes.


The vehicle you drive is also a factor.  More expensive vehicles are going to have more expensive repairs for an accident, and require more money if totaled.  Those who have vehicles worth less money will pay less in insurance, as their claims will be lower in cost to the insurance company.  Some cars, whether expensive or cheap, have a reputation for being accident-prone.  A car people love to drive fast will see higher rates.  And for whatever reason, some vehicles get stolen more; owning such a vehicle will cost more in insurance.  For those trying to get the best value, we recommend getting quotes for vehicles you are looking for when determining overall cost.  We wouldn't want you to pick a car because it's cheaper and then end up paying way more in insurance.


Whether you finance, lease, or own a vehicle, that will play a role in the cost.  Those who own their vehicle have less accidents and claims.  For those who finance or lease, they will pay more for insurance.  If you are financing, be sure to update your policy once you have paid off the loan for potentially getting a better rate.

Credit History 

You might be surprised to hear that your credit score can impact your insurance premiums.  Those with low credit scores are much more likely to get into a car accident.  Those who are more responsible with their money tend to be more responsible with their vehicle.  A few states like California, Hawaii, and Massachusetts have banned insurance companies from accessing this information to determine insurance rates.  But in all other states, credit score is fair game. For those building their credit, it's important to get new quotes when your score increases significantly, as you could save hundreds of dollars.


Age typically correlates with driving history, but that's not always the case.  For people who have been driving a long time and have more experience behind the wheel, they see cheaper rates reflected on their insurance cost than those who might be the same age but with less experience.  Having a longer driving history can provide better pricing breaks.


How well you drive is much more important than how long you have driven, in the eyes of the insurance company.  And a huge factor is your record of violations and accidents.  Those who have serious violations, such as a DUI, running a red light, or speeding, will have much higher rates.  People who are accident-prone, even if the accident isn't their fault, will probably see their rates go up.  Most insurance companies only look at the last 3 years, so it's important to get new quotes yearly after a serious violation or accident, to ensure you get the most affordable policy.


Perhaps this seems too obvious, but the coverage amounts, limits, and deductibles, will alter your rates.  If you have high limits, you will pay more.  If you have a low deductible (the amount you pay before the insurance company starts paying), you will pay more.  States have their own limit requirements.  Some states require you to have a minimum of $15,000 in coverage.  Others are $25,000.  So if you are looking for the cheapest possible policy, you might be hindered by the requirements in your state, except for New Hampshire and Virginia, which doesn't require insurance.  There's also optional parts like Collision, Comprehensive, Medical, and Roadside Assistance which should add to your cost if you opt-in for any of these.

Looking For A More Affordable Auto Plan? 

As an independent insurance agency, we shop over 20 different insurance companies to find you the best rates.  We apply all possible discounts to find an affordable plan that gets more money back in your pocket.  Call us today so we can get started for you.