What factors affect car insurance rates?
Car insurance companies want to know all about you before they determine rates. Everything from your age, driving record, home address and credit history can be used to calculate rates. Once you understand what factors car insurance companies prioritize, you can work to improve factors and get lower rates.
“Auto insurers typically use more than a dozen rating factors to determine the cost of your insurance policy. Some common factors are prohibited in certain states, such as credit history, gender and ZIP code,” said Mark Friedlander with the Insurance Information Institute. “Factors that are allowed in all states include your motor vehicle record, claim history, location (city/state) and the type of vehicle you drive, as well as the coverage levels and deductibles you choose.”
Let’s dive into specific factors that impact car insurance rates.
Age
Teens and young drivers pay much higher car insurance rates since they lack experience behind the wheel. As you get older, rates lower significantly. However, once drivers reach their senior years, usually over 65, rates increase again due to more health problems and slower reaction times. Hawaii and Massachusetts have banned the use of age as a car insurance rating factor.
Gender
Both age and gender affect car insurance rates. Male drivers tend to take more risks, such as speeding, than female drivers. Car insurance companies usually charge males higher rates until they are older. However, some states, such as California, Florida, Hawaii, Massachusetts, Michigan, North Carolina and Pennsylvania, don’t allow insurers to consider or limit the use of gender when calculating rates.
Years of driving experience
How much time you’ve spent behind the wheel is significant. Drivers with more experience are more adept at avoiding accidents and being defensive drivers. You will see higher car insurance rates if you’re an older driver who just received your license. Even in states where age is banned as a factor, years of driving experience can still be used.
Driving record
Your driving record is one of the best indicators of risk. Drivers with tickets, accidents and DUIs on their records are more likely to cause accidents and file claims. Multiple infractions on your driving record can cause rates to skyrocket.
Marital status
Married drivers are perceived to be more stable and less likely to take risks. Insurers often offer discounts to less risky drivers, which lower rates significantly.
Geographical location
Some areas of the country are more likely to be hit with natural disasters or have high vehicle theft rates, while others have higher accident rates. Drivers in these areas pay more for insurance since their vehicles are more likely to be damaged.
Credit history
Statistically, drivers with a lower credit score are more likely to file a claim. It should be noted that California, Hawaii, Massachusetts and Michigan don’t allow insurers to use credit scores to calculate rates.
Annual mileage
Drivers who spend a lot of time on the road have a greater chance of being in an accident. Where you drive can also impact your rates since driving in an area with a lot of traffic or animal encounters can lead to more accidents.
Vehicle type
Your vehicle’s make and model affect its insurance rate. Cars with good safety ratings see lower rates. Expensive luxury and exotic cars typically have enhanced technology and harder-to-obtain parts. These vehicle parts and systems are more costly to repair or replace, and labor costs are also increased, resulting in higher insurance rates.
Vehicle use
Insurers charge more for coverage if you use your vehicle to drive to work every day rather than leaving it parked in your driveway most of the time, whether that’s because you work from home or you use public transportation to commute.
Coverage types and limits
Higher coverage levels and lower deductibles mean more costs for the insurance company but lower out-of-pocket costs if your vehicle is damaged. Rates are higher based on the amount an insurer might have to pay if you file a claim.
Previous claims
Drivers who’ve filed numerous claims in the past are more likely to continue to cost insurers money, so car insurance rates increase dramatically with each claim. Insurance rates may increase after a claim even if you didn’t cause the accident.
Previous insurance
Driving without car insurance is illegal in most states. Insurers want to know that you’ve had continuous coverage, and a lapse in coverage indicates you may be a risky driver.
Why you need to compare car insurance companies?
Many car insurance companies offer similar coverages, but rates can vary significantly. All insurers use your unique factors to determine coverage rates, but not all insurers weigh the factors the same. For example, one company may charge higher rates due to the number of claims filed in the last few years, but another may charge more for the speeding ticket you got last year.
The best way to find affordable car insurance rates is to compare quotes from numerous insurers and improve personal factors like your driving record. Also, make sure you shop around yearly since your factors change and can lead to lower rates.
Car insurance premium trends
Like other sectors of the economy, car insurance costs are rising. Insurers cite increasing labor and material costs as one reason coverage rates are higher than ever. More technology in new cars means that mechanics must keep up to date, and replacement parts are more expensive.
Additionally, increased severe weather events, such as floods and hurricanes, cause insurers to raise rates across the board. In some states, like Florida, insurance companies are pulling coverage since the likelihood of claims is too high.
Since car insurance rates will continue to reflect inflation and increased costs, shopping around for coverage is essential. Compare multiple quotes each year to ensure you’re getting the best deal.
How to lower car insurance premiums
Although you can’t change your age or gender, there are changes you can make that lower your car insurance rates.
Consider making changes such as:
- Improve your driving record. Traffic violations stop impacting car insurance rates after a few years. Avoid adding tickets, accidents and DUIs to clear your driving record and get better rates.
- Consider a less expensive vehicle. To get lower rates, consider a cheaper car that is less expensive to repair or replace.
- Lower coverage and raise deductibles. Only carry the necessary coverage and prepare to pay more out of pocket if you file a claim.
- Reconsider filing a claim. If you can pay for repairs, consider skipping the insurance company to keep rates low.
- Raise your credit score. Make on-time payments and carefully consider how you use credit to lower car insurance rates.
How do insurance companies determine rates?
Insurance companies are all about risk. They use your factors to gauge how likely you are to cost them money. Drivers more likely to cause the insurer to pay a claim see much higher insurance rates than low-risk drivers.
However, knowing the exact formula insurers use to determine rates is impossible because each company creates its own formula. For example, one insurer may prioritize your driving record, and another may consider your vehicle more critical.
Since each insurer is different, comparing multiple car insurance quotes is essential to find the cheapest rates.
Car insurance discounts that can lower rates
Taking advantage of discounts is a great way to lower car insurance rates. Car insurance discounts may sometimes balance out higher rates due to personal factors.
For example, a good student discount may combat higher insurance rates for teen drivers, a discount for safety features may help with higher insurance rates for a new car, or a defensive driving course discount may counteract a high rate for a speeding ticket.
Most insurers allow you to combine multiple discounts, so work with an insurance agent to take advantage of discounts where possible.
FAQ
Why is car insurance expensive in some states?
Car insurance rates are higher in states with a high number of thefts, a large volume of traffic or natural disasters. Insurers charge higher rates because they are more likely to pay repair or replacement claims. State laws for minimum car insurance requirements also play a role in costs; no-fault states generally have higher car insurance costs.
Why does having a higher deductible lower your insurance premiums?
Your deductible is the amount you pay out of pocket before your insurance kicks in when you file a claim. The more you pay yourself, the less the insurance company pays, which leads to lower rates.
What types of drivers generally pay more?
Young, inexperienced drivers and drivers with a bad driving record typically pay higher car insurance rates. Additionally, male drivers and people with poor credit ratings pay increased rates.
What raises and lowers your car insurance?
Violations and accidents cause your rates to go up, as do claims, poor credit and a lack of experience behind the wheel. On the other hand, a clean driving record, good credit, clean claims history and years of experience all cause rates to go down.
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