The cost of your auto insurance premium is the result of careful risk calculations by your insurer based on lots of different factors. Car insurance bills won’t come with an itemized receipt with how much you’re paying for falling into certain categories, but this guide will help you learn about the factors that influence the price you pay for your insurance.
How Insurers Price Your Premiums
When car insurance companies decide how much you need to pay for coverage, they keep in mind how likely you are to use that coverage. While car insurance companies don’t reveal how they set their rates, there are several circumstances that are generally known to sway the cost of your premium. There are certain factors you can influence, like your credit score or the type of car you drive, while others, like your age or driving history, are out of your control.
Common Factors that Influence Price
Location
Where you live, or where your car is kept and driven, can have a large impact on your car insurance premium. For example, living in a densely populated city can label you higher risk simply because the large number of other drivers in close proximity increases your chances of getting in an accident. Depending on your coverage levels, theft and vandalism in your area can also impact your insurance cost.
Driving history
How much your driving history impacts your rate will depend on what type of infractions you have on your record. In general, more serious offenses on your record, like DUIs, will have a greater impact on raising your rates than other marks on your record, like a minor speeding ticket.
Claim history
Insurance companies are very interested in your history as an insurance customer. Seeing an array of previous claims can tip off an insurer that you are a higher risk. You may not have ever gotten a speeding ticket, but if you have been involved in several recent accidents that is a strong sign that you might not be such a safe driver and therefore will be more expensive to insure.
Gender
One reason gender can affect your insurance premiums is that men are statistically more likely to get into an accident, but just how much more likely depends on their age. Your gender has a larger impact your premiums when you’re younger, but as you get older, and more experienced as a driver, this factor will weigh in less and less.
Age
Age also affects your premiums differently at different times in your life. Younger drivers are typically considered higher risk, likely due to having less experience on the road. Most insurers quote higher premiums for drivers under 25 years. However, more experience behind the wheel only helps up to a point. Drivers in their 60s and 70s will likely start to see their premiums go up due to higher accident rates for this demographic.
Credit history
Insurance might seem unrelated to credit scores, but insurers actually tend to use this information as they gauge how likely you are to make a claim. A good credit score indicates to insurers that you’re generally responsible and stable. Boosting your credit score can help you save on your premiums, and you can continue to save even more as your score climbs.
Vehicle
The type of car you drive doesn’t only have an impact on your cost for comprehensive and collision coverage, but also on your risk to get into an accident as a whole. Driving a sports car, for example, will spike your auto insurance cost because, to insurance companies, it means you’re more likely to speed and therefore get into more serious accidents more often.
Home ownership
We know, we know, this is auto insurance not homeowners. But this still factors into your overall risk in the eyes of your insurer because it displays a higher level of stability and responsibility, and therefore less risk. This is a relatively smaller effect, so it’s not going to make sense to buy a home in order to save on your auto insurance, but it is an added perk of home ownership.
Marital status
Even your love life seems to have an affect on your car insurance rates earlier in life. When you’re under 30 years old, being married can signal to insurers that you are stable, responsible, and statistically less likely to get into an accident than a single driver. Once you get older, though, this effect lessens.
What’s Next?
- If you fall into a category that would tend to drive your premium higher, you may want to look into insurance companies that are known to offer more competitive rates for that factor.
- Learn everything you need to know about auto insurance quotes.
- If you’re looking to stay covered on a budget, check out our review of the Best Cheap Auto Insurance Companies.
- Dive into the details of car insurance rates for millennials with our Millennials and Auto Insurance report.
About the Authors
Samantha Kostaras is an insurance reporter who covers personal finance and insurance. After a degree in finance from the University of Alabama and stint at Morgan Stanley, she worked as a financial analyst before becoming a journalist. Her writing has appeared in The Simple Dollar, Reviews.com, Coverage.com, and elsewhere.