What Determines Car Insurance Rates

Fran
Fran Majidi
March 1, 2019

Car insurance rates go up and down based on many factors. Insurance companies use risk evaluation metrics to determine rates based on the likelihood of you filing a claim. Auto insurance companies constantly need to do a balancing act to avoid writing too many policies for cars that end up in accidents or get vandalized/stolen. Otherwise the company would lose all the money intended to cover other losses. Basically, that means that most insurance companies sign far fewer high-risk clients than those who are statistically less prone to find themselves in an accident. One way to keep everything balanced is to price high-risk drivers at higher rates. Also, carriers like Progressive entice low risk drivers is by offering discounts. You, as a consumer, may be able to lower your monthly premiums by knowing what the factors used in these calculations are. So, here are the top factors that determine auto insurance rates:

Age

Young drivers pay the highest rates for auto insurance. Teens are seen as the riskiest to insure because statistically they drive less cautiously and are involved in more accidents than any other age group. Your rates begin to be more reasonable at age 20 but are still dramatically high until 25 or 26. Age 50 is on the other side of the spectrum and sees a dip in auto insurance rates. While you cannot change (or even lie about) your age to get car insurance, your best bet is try to work on positioning other factors that you can control in your favor.

Driving History

As expected, a history of car crashes, a couple of cars stolen and some DUIs will raise your rates. However, if you have no incidents within a given year, your rate may drop. This is one factor that is in your hands: Drive cautiously and avoid accidents to reduce your rate. Get multiple insurance quotes for free here.

Credit Score

Some states, like California, do not use credit scores to determine car insurance rates while others do. According to the Federal Trade Commission’s data, drivers with lower credit scores file more claims than drivers with good credit. In addition, the claims filed by drivers with lower credit scores are usually more expensive.

Driving Experience

The number of years you have been driving will affect your rate, so if you avoid filing claims (and accidents), your rate should decrease over time. With experience, drivers make fewer mistakes that lead to collisions and theft.

Garaging Address

Your location is also a big determining factor for your auto insurance rate. Your zip code tells a car insurance carrier how prone you are to floods, crime, wildfires, and other perils that may cause damage or loss of your vehicle.

Gender

Most states still use gender as a determining factor in setting car insurance rates. While most people assume that male teens pay the highest car insurance rates, the truth is that rates vary depending on the carrier. Some carriers charge female teens more while others charge male teens more. The numbers continue to be just as haphazard as the driver gets older. So, gender is a determining factor but not in any consistent, quantifiable way.

Coverage History

Continuous coverage is one of the most important factors used to determine car insurance rates. If you were licensed without insurance, it’s often assumed that you were driving uninsured, a fact that renders a driver much riskier to insure.

Claims History

If you have filed claims or had claims filed against you, you’re likely to have a much higher rate than someone with one or no accidents. At-fault accidents take the biggest hit on your rate.

Auto History

The number of times a vehicle has traded hands and the type of car ownership also affect insurance rates. In other words, your rates vary according to whether your car is owned, leased or financed.

How Much You Drive

Your annual mileage is a big determining factor for rates. This is because the more you drive the more at-risk you are of getting into an accident. Some carriers offer considerable discounts to people who drive less than 7500 or 5000 miles a year.

Marital Status

Married drivers are seen as lower risk than single ones, mainly because they file fewer claims than a single drivers.

Coverage

If you have the minimum state requirement for car insurance, you will pay less than if you add on coverage. State requirements for minimum coverage vary, with some states requiring only liability insurance while others require liability and personal injury protection (PIP).

Deductible

After a claim is filed and processed, you are required to pay a deductible amount before coverage takes effect. You set a deductible rate when you first get insured. Usually, you choose from the following: $250, $500 or $1,000. The less you pay for a deductible, the higher your premiums will be and vice versa. To lower your premiums, you can raise your deductible.

Vehicle

The make/model and year of your car, SUV or truck will greatly impact your auto insurance rate. For one thing, your rate is based on the overall value of the vehicle, so the more expensive your vehicle is the more you pay. It makes sense when you think about it: the pricier the car, the more expensive parts and repair will be on that car.

Discounts

Different carriers offer different discounts. Progressive’s discounts, for example, include the following: multi-policy discount, good driver discount, safe driver discount, multi-car discount, homeowner discount (separate from a bundling discount), sign online discount, online quote discount, paperless discount, continuous insurance discount, teen driver discount, good student discount, pay-in-full discount and automatic payment discount.

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