7 Factors Determine Your Car Insurance Rates


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It’s easy to chalk auto insurance rates like a bunch of random numbers made up of milk insureds for every penny they’re worth. This is usually not the case.

There’s a lot of math that goes into calculating car insurance rates. Insurance companies build a detailed profile of an individual based on personal information such as claims data, credit history, and other factors.

The bottom line is simple – insurance companies want to minimize the risk on their end. They make an educated guess based on their algorithms to predict the likelihood of you making a claim. The higher your risk, the higher your car insurance premiums will be. The more secure your profile, the less you will have to pay.

Some of these risk factors are obvious, such as your credit history, car accident history, etc. Insurance companies often have a lot of statistical data to support these assessments.

What are the major “pricing” factors for auto insurance rates?

1. Geographic location

The first piece of information insurers will ask for is your postcode because where you live affects your base rates. If you live in a densely populated area, the likelihood of road accidents increases. For obvious reasons, driving in an urban area puts you at greater risk than in a less populated area with fewer people and cars on the road.

The postcode also reveals the number of stolen vehicles at the location, the number of claims, instances of vandalism, and hazardous weather conditions. All of this data is used to assess the risk associated with providing insurance for you and your car in the postcode.

Some states require insurers to calculate auto insurance rates based on other factors such as your driving experience and annual mileage driven before taking zip code into account.

2. Age

The statistics have not always been favorable to young drivers, as they are generally at the highest risk of having accidents. A little immaturity and a few distractions on the road can cost insurance companies a fortune. This explains why they reserve high car insurance rates for young drivers. The good news is that rates go down as the driver gains more experience with age.

It can drop to 20% when drivers reach the age of 25. Data revealed by the Insurance Institute for Highway Safety (IIHS) shows that drivers between the ages of 30 and 70 are very likely to cause accidents. In most cases, car insurance rates remain fairly stable for policyholders up to age 70. It turns out that older drivers are also a higher risk on the road and pay a lot more.

Of course, this gender bias is fully supported by studies and raw data. Older drivers have poor motor skills which affect their ability to stay out of trouble.

Some states, such as California, Hawaii and Massachusetts, do not allow insurance companies to rate based on age.

3. Gender

According to the IIHS, men rack up more miles on the road and engage in riskier maneuvers on the road, such as speeding, not using the seat belt, or driving under the influence. The IIHS has reported more crashes involving male drivers than female drivers. This does not necessarily mean that men pay higher car insurance rates than women.

Studies show that gender differences in road crashes decrease as drivers age. When men and women reach their thirties, their car insurance rates are comparable. However, as they reach their 60s, the rates for men increase relative to women, as older men cause more accidents than older women.

Some states prohibit gender bias in auto insurance rate calculations, including:

  • Hawaii
  • North Carolina
  • Michigan
  • Massachusetts
  • Montana
  • Pennsylvania

4. Driving record

An insured’s driving history is one of the most important pieces of information used to calculate car insurance rates. Drivers with a clean history automatically qualify for better rates and also receive a safe driver discount, further reducing their rates. Drivers who have been in an accident or have been in trouble with the law (drink driving, speeding, etc.) will have to pay higher car insurance premiums.

A minor violation on the road, such as a speeding ticket, is enough to affect your rates by up to 40%. A major violation can affect rates by more than 100% due to increased rates and loss of discounts.

5. Marital status

Married couples are less likely to perform risky maneuvers on the road than single drivers (including divorcees and widowers). A National Institute of Health report found that single drivers cause up to twice as many crashes as their married drivers. As a result, married couples pay up to 15% less than single policyholders.

In addition, married drivers can also benefit from discounts such as multi-policy discounts and multi-car discounts.

Massachusetts does not allow auto insurance companies to base their rates on marital status.

6. Driving experience

Less experienced drivers pose a greater risk to car insurance companies. Anyone who has not driven a car, regardless of age, will likely pay higher car insurance premiums. Many argue that teenagers are not only inexperienced, but also less mature due to their age. This means that a 30 year old getting a new license is more mature than a 17 year old and pays a lower rate.

The more years a driver has on the road, the less he has to pay. Rates improve when policyholders have a good driving record. The combination also qualifies them for further discounts.

7. Complaint files

Insurance companies also review claims that policyholders have made with them and with other auto insurers. If the amount paid is less than a certain amount, such as $2,000, car insurance rates may remain low.

Keep your car insurance rates under control

Some factors are beyond your control, such as where you live, your age, gender, and the weather. But things like establishing a good credit score and maintaining a clean driving record will go a long way in helping you negotiate lower car insurance rates. And as always, research multiple quotes from different vendors to see what awaits you.

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