If you’re wondering what factors affect your car insurance rates, there are actually a number of ways companies calculate insurance prices. Also known as auto insurance rating factors, there are many different variables that impact premiums and others that do not influence your cost of insurance. Generally, the personal factors that affect your premiums the most are your age, gender, driving history, where you live, vehicle make and model, and coverage. With so much data and statistics available today, the best car insurance companies take several things into consideration when determining rates.
Below, we’ve compiled a complete list of how car insurance rates are determined. Furthermore, we discuss how these specific factors raise or lower your premiums to help drivers get the cheapest insurance coverage in their state.
How Are Car Insurance Rates Determined?
Knowing what factors determine the cost of auto insurance can be powerful in buying cheap coverage. The various factors insurers utilize to come up with premiums vary from company to company, but the rating factors below are considered industry standards.
It is important to consider that each of these factors weighs differently, too. For example, a driver’s marital status will not impact prices as much as her driving record, claims history, vehicle type, or credit history. Along those same lines, one insurer may weigh a consumer’s age, gender, or zip code far more heavily than another. This is why we highly recommend you compare car insurance rates at least once a year to always make sure you are paying the lowest premiums possible.
Below are the factors that have the most impact on your car insurance prices.
Top 15 Factors That Affect Car Insurance Rates 2019
Where You Live – State, City and Zip Code
Because most auto accidents, collisions, moving violations, and tickets occur close to home, where you live influences your car insurance premiums. Similarly, drivers in high-density cities and areas are more likely to be involved in incidents resulting in claims. On the flip side, drivers in rural areas usually get lower prices.
Furthermore, consumers living in areas where auto theft, vandalism and similar crimes are common will also pay higher premiums, while residents of safe neighborhoods are labeled low risk and get lower premiums.
Another factor affected by where you live is the state insurance requirements. The minimum amount of car insurance you are required to buy according to state laws and regulations will increase or decrease your quote. This is why consumers often compare average car insurance rates by state in the hopes of understanding how much they are paying in comparison to other residents.
Ultimately, insurance companies use statistics and data based on your zip code, city and state to determine how much your insurance will cost. This is why providers always ask for your zip code when you get free insurance quotes online.
Not surprisingly, age affects insurance rates. For the most part, insurance providers estimate that risk decreases with age. Studies have shown that young drivers are more easily distracted, and are far more apt to engage in risky driving behavior. This means that teenage drivers and college students with only a few years of driving experience pay higher premiums than older, mature drivers.
Nevertheless, as drivers get older, their rates will start to decline steadily. While there is no industry schedule for lower premiums by age, most young drivers find that their rates decrease by 15% to 20% when they reach the age of 25. The cost of insurance for 16, 17, 18, 21, and 23 year old male and female drivers confirms this trend.
In contrast to teen drivers, insurance companies consider drivers between the ages of 30 and 65 the safest, based on information collected by the Insurance Institute for Highway Safety (IIHS). Drivers who fall into this age range and have a clean driving record often pay the cheapest premiums.
While drivers between the ages of 65 and 69 are starting to show signs of being higher risk, quotes increase once a driver reaches 70. Research has shown that elderly drivers have slower reflexes, and have the potential to experience a significant medical event (e.g. heart attack or stroke) while driving.
The takeaway is that young drivers have high rates and older drivers have low rates. However, states that don’t allow companies to rate based on age include California, Hawaii and Massachusetts.
Insurers also consider gender when they calculate quotes, and while this may seem outdated, statistics have shown that male drivers are more likely to be involved in accidents and collisions than female drivers. There are several reasons for this.
For starters, men tend to drive many more miles than women each year, which creates an inherent risk. Statistics have also shown that men are more willing to engage in risky behaviors behind the wheel; more men than women are cited for failure to use a seat belt, drinking and driving, and excessive speeding than women every year.
Of course, things change as people age, and by the time men and women reach their 30s, auto insurance premiums are about the same for both. Some insurers may even rank females as higher risk drivers once they reach their 30s, but again, this depends on the company’s own claims data.
Finally, once drivers reach the age of 60, statistics again show that male drivers pose the bigger risk; men over the age of 60 crash more often than women in the same age group. However, this is also strongly correlated with the fact that males tend to drive more, often being the primary driver when the family is together.
Nevertheless, there are states that do not allow gender to affect rates, including Hawaii, Massachusetts, Michigan, Montana, North Carolina, and Pennsylvania.
Marital status can also be a factor in determining your cost of car insurance, thanks to statistics. It has been shown that married couples simply drive less frequently, and less time spent on the road means less risk for companies.
Similarly, traffic data suggests that married drivers tend to be safer and more conservative on the road, while single drivers engage in more risky behavior. For instance, a study conducted by the National Institute of Health (NIH) even found that single drivers were twice as likely to be involved in an auto accident during their lives. As a result, single drivers can expect to pay higher premiums compared to married drivers.
Across the board, married couples save between 5% and 15% on their insurance policies based on marital status alone. It is also important to consider the fact that the best car insurance companies provide discounts for combined policies – a significant perk for married couples who purchase multi-car policies or who bundle existing policies (i.e. home and life insurance).
Driving experience is one of the biggest factors that car insurance carriers use to determine risk. The less experience a driver has, regardless of his/her age, the higher the risk of an auto accident. By far, teenage drivers and college students are the riskiest to insure due in part to their lack of experience. When insurance companies factor in their age, the reasons why policies for teenage drivers are so costly become clear.
Generally speaking, the more experience a driver has, the lower his/her premiums, but driving record plays a role, too. Drivers who have many years of experience and a clean driving record without collisions or traffic tickets pose the least risk to insurers, and they are rewarded with the cheapest car insurance rates.
On the other hand, a driver with 20 years of driving experience, a few at-fault accidents and several traffic violations will see his premiums go higher.
Driving Record and Claims History
Of all the factors providers use to calculate your cost of insurance, your driving record and claims history is one of the most influential. Your driving history provides an accurate summary of a driver’s ability to remain safe on the road, his/her penchant for taking risks, and ultimately, the risk the insurance company assumes in selling that individual a policy.
One violation may not result in you being labeled a bad driver because most carriers allow you to take a defensive driving course. However, two traffic violations may increase your monthly or annual premiums by 20%. Unfortunately, more serious violations such as driving under the influence (DUI) or reckless driving can push rates up by 50% or more.
Many of the nation’s largest insurance companies consider drivers who have multiple serious violations uninsurable. This simply means that for some companies, the risk posed by some drivers far outweighs any potential benefit in insuring them.
It is still possible for these individuals to purchase car insurance policies through nontraditional insurers at a significant cost. Most carriers have specific subsidiaries that deal with high risk auto insurance.
Research indicates that a driver’s credit score can be a strong indicator of responsibility and safe driving on the road. Some consumers disagree with companies basing car insurance costs on credit scores, claiming a driver’s credit history has very little to do with the ability to drive safely and defensively. Statistically, though, drivers who have lower credit scores (typically under 600) are riskier to insure.
Consumers with bad credit or low scores tend to file more claims as a whole, and they tend to inflate the dollar amount of those claims more often than drivers with higher credit scores. Recent research even demonstrates that individuals with low credit scores are more likely to commit insurance fraud.
Although some states do not allow carriers to consider your credit score and history as a rating factor, it still may have an influence on how you can pay for your policy. For example, drivers who have very low credit scores may be required to pay for six months’ worth of premiums up front.
In other cases, insurers will not allow individuals with poor credit to set up automatic payments. Because many providers offer discounts for this, but only to those with good credit, those with poor credit may see an additional charge of between $5 and $10 each month.
States that prohibit the use of your credit score as an insurance rating factor include California, Hawaii, and Massachusetts.
Previous Insurance Coverage
Compiled data collected from many of the country’s top insurers shows that individuals who have had auto insurance coverage for a long period of time without a lapse are less likely to be involved in accidents. Though insurers prefer to see drivers who have had an insurance policy through the same company for at least one year, this is only a minor consideration.
The longer drivers can go without a lapse in coverage – and without late payments – the lower the risk to the new insurer, and the cheaper the premiums as a result. Even a very short lapse in coverage of one or two days can result in more expensive rates.
Teens or young adults who are moving from their parents’ policy to their own are special considerations in this case; this is not considered a lapse in coverage as long as the new policy takes effect before the current one ends. Even consumers who won’t be driving for an extended period of time have an affordable option to prevent a lapse. The cheapest car insurance policy in this case is a non-owner’s policy.
Vehicle Type and Value
The type of vehicle and its value also tremendously influence costs. Some vehicles may be stolen or vandalized more than others in certain areas, and statistics might also show that vehicles in a specific color are more likely to be involved in accidents. Moreover, certain vehicle types, such as sports cars, are conducive to speeding or aggressive driving styles.
The make and model will also influence the vehicle’s value and potential cost to the insurer to repair. For instance, a Mercedes Benz, BMW, Porsche, Audi, Lexus, or Jaguar is likely to be more valuable and more expensive to repair or replace than a Ford, GM, Camry, or Honda produced in the same year.
Some insurance carriers look at the condition of the vehicle, as well. Automobiles that have not been properly maintained and those that have been in previous accidents may be at more risk of mechanical failure on the road, thus increasing risk.
On the other hand, a car with numerous safety features, such as side curtain airbags, anti-lock brakes, traction control and an anti-theft device, may be eligible for significant discounts since these features lower the risk of injury and damage.
Average Annual Miles Driven
The number of miles a consumer drives each year also plays a role in determining overall risk. After all, the more time a driver spends on the road, the greater the likelihood of being involved in an accident at some point. Insurers may calculate a driver’s mileage in any number of ways, but the most common involves determining the driver’s daily commute.
Vehicles driven for pleasure may have more or less annual mileage than those used for work, so insurance companies typically rely on the driver to provide accurate mileage information.
Finally, auto insurance rates for cars used for ride-sharing services or for making deliveries are much higher due in part to the additional mileage, but also to the enhanced liability of carrying passengers or goods.
If you have multiple cars on your policy and don’t drive one or more as often as others, talk to your company about getting a low-mileage discount.
Amount of Auto Insurance Coverage
Aside from your driving record, the amount of coverage you want (or need) to buy will significantly impact your monthly or yearly car insurance rates. There are numerous types of coverage from which drivers can select, and in most states, liability is considered the bare minimum. Other coverage options include collision and comprehensive, uninsured or underinsured motorists, and medical payments and personal injury protection insurance.
It is important for each driver and owner to truly understand his/her needs and remember that state minimums are not always the best choice, even though they come with the cheapest premiums. After all, if your coverage runs out, you are liable for medical expenses and damages out-of-pocket. Always buy enough protection to cover your assets and protect your family.
Consumers should talk to their insurance agents to discover their options and choose a good mix of affordability and risk reduction. For new cars, buy full coverage auto insurance coverage; otherwise, for old or low-value vehicles, just get liability. Some insurance providers may even sell discounted roadside assistance, which can come in handy for drivers whose vehicles may break down or run out of fuel on the road.
A deductible is the amount of money a driver must pay toward a claim before the insurance company insurer will pay out. Deductibles can vary from company to company and from policy to policy, but most range from $0 to $1,000.
The lower the deductible, the higher the car insurance premium and vice-versa. Many drivers mistakenly choose a high deductible to get lower monthly payments only to find out that they don’t have the money saved to pay the deductible for a significant repair.
Though it may seem like a good idea to get the cheap car insurance option despite the high deductible, drivers should always consider their financial circumstances and whether they can actually afford the deductible in the event of an accident. Much like choosing coverage amounts, it is important to balance the affordability of the car insurance policy with the affordability of the deductible.
Drivers with more education tend to pay less for car insurance coverage. Studies have shown that a driver without a college degree can get quoted a rate 20% more than another consumer with a bachelor’s degree. Similarly, professionals with post-graduate degrees enjoy the lowest rates.
Many students and parents of young drivers wonder if grades affect car insurance. Because most insurers offer good students discounts, having good grades can help parents and families get lower insurance rates.
Companies have found that grades can correlate with driving behavior and risk. Specifically, students with a “C” or “D” average were nearly 50% more likely to be involved in an accident within their first year with a driver’s license.
For this reason, providers will give discounts to students with good grades. Parents of teens or students with at least a 3.0 grade point or “B” average should ask their agent or representative for a “Good Student Discount”. Just be prepared to provide documentation since most carriers will request a transcript or some form of proof.
Compare Car Insurance Rates
While understanding all the rating factors that can affect insurance rates can be helpful in finding the cheapest prices, the truth is that the best way to get lower premiums is to bring a competing quote from another company. Use our free online car insurance comparison tool to get free quotes online from all the best providers. Even if you don’t plan on switching companies, if another carrier is offering cheap rates, your current insurer is likely to match their prices to keep your business.
Just enter your zip code to find companies in your area and get multiple instant quotes to compare policies, coverage options, prices, and services! Ultimately, this is the only way to ensure you are getting the best auto insurance for your needs!