Attempting to understand how an insurance company decides how much you should pay for car insurance can be quite challenging.
Insurance providers integrate multiple factors into their formula to determine how risky it is to insure you and what are the odds that you will file a claim during coverage. From the insurance provider’s perspective you’ll get a lower rate if your perceived risk is lower.
When determining rates, not all insurance companies will weigh exactly the same factors nor to the same extent. If you request quotes from several companies, you may find that one company offers the same coverage at a significantly lower cost. But how can that be? It all boils down to which counts the most for the individual provider.
Here are ten of the top factors that will affect policy prices when shopping for auto insurance.
Table of Contents
1. Your Driving Record
Your driving record accompanies you. Any moving traffic violations or accidents that were your fault will be front and center when deciding insurance rates. Providers will examine your driving history from the last 3-5 years depending on where you reside. If you have traffic tickets or at fault accidents on your record, expect a higher cost.
DUI or DWI convictions may make it hard to find a provider, and if you don’t find one willing to cover you, you’ll end up getting non-standard car insurance for drivers who pose a greater risk or purchasing from the assigned risk pool in your state of residence.
2. Your Credit History
Believe it or not, credit counts even in auto insurance. For many providers, your credit-based insurance score will weigh heavily on the final price. Several states forbid the use of these scores, but providers maintain that they predict how likely you are to file a claim.
3. The Kind of Coverage You Want
The coverage options you choose will directly influence pricing. Still don’t risk not getting necessary coverage because you are looking for a cheap policy. If you need full coverage, don’t settle for your state’s minimum insurance requirements because if you are involved in an accident this can spell financial meltdown.
Fundamental kinds of coverage include:
- Liability which is required in most states as it covers injuries and property damage to others as well as a legal defense if you are sued.
- Comprehensive Collision Coverage pays for accidents, vandalism, theft, floods, fire, hail, and falling debris.
- Medical Expense Coverage will vary depending on where you live but generally pays medical and legal expenses if you are injured.
There are other options such as uninsured motorist coverage, gap insurance, accident forgiveness insurance, roadside insurance, and rental reimbursement coverage.
4. The Deductible
The deductible you indicate will influence your overall cost. The deductible is what you pay up front if you present a claim to your provider. Deductibles usually range anywhere from $250 to 10 times this amount. If you select a higher deductible, insurance premiums will cost less.
5. The Car You Drive
The kind of car you drive is significant in determining premiums. Providers evaluate potential repair costs, theft statistics, and the data for claims paid for your particular model of vehicle.
6. Age, Experience, and Gender
The less driving experience you have, the more you’ll pay for insurance. Teen drivers aged 16 to 19 have three times higher risk of fatalities than drivers over twenty. Women also tend to be involved in fewer accidents. Lifestyle changes can also affect your car insurance.
7. Your Car Insurance History
New drivers can expect to pay more because they don’t have a history. Gap insurance can also be a red light for providers regardless of if you were between cars or had a policy canceled for non-payment.
8. Your Address ZIP Code
Believe it or not, where you live matters. Your area of residence can drive up pricing due to weather, theft, vandalism, and accidents. Crowded city centers will pay more than suburban residents. Local repair costs and medical costs will also be factored in as well as statistics about lawsuits.
9. How Often You Drive
If you use your car to commute to work daily, you’ll pay more than the occasional driver. More miles equate to more risk.
10. Your Claims History and Insurance History
Continuous coverage lowers premiums to some extent. A history that shows a lack of continuous coverage is considered an increased risk indicator. Insurance providers also consider numerous claims including any claims filed against you as a red flag. If claims have been paid out, expect to pay higher premiums.
While all these factors will affect your insurance cost, the company you choose will also play into the final expense. Some companies are just more expensive. Auto insurance discounts can also play a big role in determining premiums. Many discounts reflect the factors cited above. If your driving record is clean, you accrue low mileage, or use anti-theft technology, providers may offer substantial savings for your coverage.