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How Are My Car Insurance Rates Calculated?

While comparing car insurance premiums with your friends or colleagues, you may find that their rates are very different from yours. Several factors influence the cost of your car insurance and these can range from where you live to your credit history. Read on to learn more about these factors.

1. Location

Where you live is the main determining factor in the cost of your auto insurance. Each state has its minimum liability requirements so the cost of car insurance in Missouri will not be the same as that of Florida. States that often experience extreme weather events will have higher rates as well.

Furthermore, drivers in cities typically pay higher insurance premiums than drivers in rural areas. Because there are more vehicles on the road in cities, the likelihood of a crash is higher. Areas with denser populations also report higher crime rates which may lead to more break-ins and auto thefts.

Other considerations can include speed limits. If your area is known for high-speed traffic, you may have higher rates because speeding accidents are more likely to occur. Similarly, if you park outdoors and on the street instead of in a garage, your vehicle is more likely to get damaged by falling objects or other vehicles. Hence, your premium will be higher.

2. Vehicle Choice

The cost of auto insurance can vary widely depending on the vehicle type.

The repair or replacement costs of a luxury vehicle with expensive or specialty parts are higher, thus the insurance premiums reflect this. A more common and affordable car poses less of an insurance risk because they cost less to fix and spare parts are readily available.

Vehicle age is another aspect that determines insurance rates, even for cars of the same make and model. Generally, older vehicles are less expensive to insure as they are deemed to be worth less. However, antique or collectible classic cars that are highly valuable may cost more to insure. In such cases, you should consider specialized classic car insurance policies.

3. Age

Insurance providers take your level of maturity and experience into account. Young drivers are considered more likely to take risks, such as speeding, texting while driving, or not using safety belts. Therefore, teenagers and young adults up to the age of 25 are likely to be charged higher premiums.

Once you are an adult, age is not a significant factor for insurance rates. However, as you become classed as a senior around the age of 65, your rates are likely to increase again. This is due to impediments in vision and reaction time that affect many senior drivers. Even if your health tests prove fine, you may still be subject to higher premiums.

4. Driving History

Your driving history greatly influences your insurance rates.

Issues considered include speeding tickets received, being at fault in accidents, or frequent claims. If you are involved in a crash and are found to be guilty of driving under the influence (DUI) or driving recklessly, your insurance provider has the right to increase your premium significantly or even choose not to renew your policy.

On the other hand, if you have a history of safe driving and have not made any claims for several years, your insurer may offer you a ‘good driver’ discount on your policy premium. This is because you are less likely to be involved in an accident or make a claim, thus saving them money.

5. Expected Mileage

Logically, the more time you spend on the road, the higher the chances of you being involved in an accident. Hence, insurance providers will ask you to estimate your annual mileage. Depending on your state, high-mileage drivers can pay considerably more than average drivers.

If you are a low-mileage driver who only uses your car for short commutes and drives less than 7,500 miles a year, you may be eligible for a lower premium. However, if you clock up more than 15,000 miles a year in your car, you are considered a high-mileage driver and can expect to be charged at least a hundred dollars more on your annual premium.

6. Credit score

This last factor is a slightly controversial one.

In 2007, the Federal Trade Commission (FTC) reported a correlation between a driver’s credit history and the frequency and severity of their auto insurance claims. Insurance providers thus began to adopt the idea that a higher credit score suggests a lower claims risk.

However, the Consumer Federation of America (CFA) argued that using credit scores to judge competent drivers is unfair. Therefore, credit history is banned from influencing insurance calculations in certain states such as California. Unfortunately, your insurer may still use your credit score to determine your insurance rates in other states.

Another controversial factor that is thought to influence your insurance premium is gender. While there are regulations against gender-based pricing in many states, the CFA found in 2017 that some women were being charged more for auto insurance than men even if they had a better driving history. However, this is seldom considered a factor of consequence.

As you can see, a variety of factors influence your insurance premiums. When choosing an insurance provider, be sure to do your research and compare products and prices. Select an insurer that offers the fairest deal and the best coverage for your circumstances.

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