How does the insurance company determine my premium?
Some of the factors included in determining your premiums include location, demographics, your vehicle, coverage details, how much you drive, your driving record, and your credit history.
There is no set formula for calculating your premiums since each company will have its own method and will weigh each factor differently.
Car insurance discounts can have a significant impact on your car insurance premiums, but each company will also have its own way of determining how much you can save.
If you’re new to the car insurance world, or if you’re wondering why your car insurance rates spiked all of a sudden, you may be curious about what factors go into determining your premiums. While each car insurance company has its own way of calculating rates, the considered factors are similar across the industry.
You can read more below to learn about the factors used to determine your premiums, why there is no set formula for calculating your rates, and how car insurance discounts can vary from company to company.
If you’re still wondering, “What factors are used to determine my premiums?” enter your ZIP code into our free quote comparison tool above to see the differences between rate calculations.
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There are many different factors that car insurance companies use to determine your rates.
One of the most important determinants is your location. For example, some drivers may be more likely to get into an accident, have their car stolen, or be victims of certain natural disasters. Therefore, your car insurance company will consider your ZIP code to determine your rates.
Another factor to consider is your demographics. Your age and gender are crucial. Males may pay higher rates than females, and younger drivers with less experience may pay more than older drivers (although rates may increase again for seniors).
| Driver's Age | Average Cost Per Year |
|---|---|
| 16 | $8,226 |
| 18 | $6,456 |
| 21 | $3,620 |
| 25 | $2,374 |
| 30 | $2,078 |
| 35 | $2,028 |
| 40 | $1,973 |
| 45 | $1,929 |
| 50 | $1,855 |
| 55 | $1,845 |
| 60 | $1,867 |
| 65 | $1,956 |
| 70 | $2,131 |
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Your marital status and occupation can also affect your car insurance rates. For example, married individuals are likely to pay lower rates than those who are single. In addition, those who work in high-risk occupations will pay more.
Car insurance companies will also take into account your vehicle. Newer or more expensive cars will cost more to insure, and those that may be more likely to attract thieves or cost more to repair. In contrast, vehicles with safety features may get you a discount.
Another important determinant is your coverage details. If you choose a higher level of coverage or type of car insurance, you will pay more. Add-on coverages, such as roadside assistance, can also increase your rates. However, if you increase your deductible, you may reduce your premiums.
How much you drive will affect your rates as well. If you drive a lot, your rates will go up. However, if you drive less than 12,000 miles per year, you may be able to get reduced rates. Some companies also offer pay-per-mile car insurance, saving infrequent drivers money.
Car insurance companies will check your driving record when you apply for coverage. If you have violations on your driving record or filed claims with an insurer in the past, you may have to pay more for car insurance. Serious infractions, such as DUIs or reckless driving, may limit you to companies that specialize in high-risk car insurance.
Average Annual Car Insurance Rates Based on Driving Record and Company
| Companies | Rates with a Clean Driving Record | Rates with One Accident | Rates with One DUI | Rates with One Speeding Ticket |
|---|---|---|---|---|
| USAA | $1,933.68 | $2,516.24 | $3,506.03 | $2,193.25 |
| Geico | $2,145.96 | $3,192.77 | $4,875.87 | $2,645.43 |
| American Family | $2,693.61 | $3,722.75 | $4,330.24 | $3,025.74 |
| Nationwide | $2,746.18 | $3,396.95 | $4,543.20 | $3,113.68 |
| State Farm | $2,821.18 | $3,396.01 | $3,636.80 | $3,186.01 |
| Progressive | $3,393.09 | $4,777.04 | $3,969.65 | $4,002.28 |
| Travelers | $3,447.69 | $4,289.74 | $5,741.40 | $4,260.80 |
| Farmers | $3,460.60 | $4,518.73 | $4,718.75 | $4,079.01 |
| Allstate | $3,819.90 | $4,987.68 | $6,260.73 | $4,483.51 |
| Liberty Mutual | $4,774.30 | $6,204.78 | $7,613.48 | $5,701.26 |
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With that being said, safe drivers can also be rewarded by having lower premiums. For example, many car insurance companies offer safe driving discounts or usage-based insurance (UBI) programs that track driving habits and discount those with good scores.
Car insurance companies will also check your credit history (this practice is prohibited in California, Hawaii, Massachusetts, and Michigan). Good credit scores may lead to lower car insurance rates and vice versa.
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If you’re searching for a “how to calculate insurance premium formula” or “how to calculate premium in general insurance,” you’re unlikely to find a solid and helpful answer. The lack of clarity on this issue is because each car insurance company will have a slightly different method of calculating your premium.
Some car insurance companies may make some factors more important than others, while some may not take those into account at all. In addition, each will have its own base premium without considering your level of risk.
In addition, each car insurance company will offer different discounts and calculate them differently.
How are car insurance discounts calculated?
Again, if you’re wondering how to calculate premium percentages for car insurance discounts, it will be challenging to find a straightforward answer. While some car insurance discounts are standard among most car insurance companies, each company will have its discount amounts and method for determining how much you can save.
Some companies may have specific qualifications to earn a discount. For example, some discounts may not be available in particular locations or to drivers of a certain age.
In other cases, car insurance companies can limit how much you can save with discounts. For example, some may limit the savings for individual discounts, while others limit how much you can save combined.
Lastly, there are many instances where you may not qualify for the total savings. For example, you may only receive a portion of a safe vehicle discount if the only safety feature your car has is an anti-theft device.
Even if you qualify for and earn discounts, you may still be able to find more affordable car insurance rates from another company. You can compare multiple companies by entering your ZIP code into our free quote comparison tool below and contact each company to learn how they determine your premium.