Factors That Contribute to the Cost of Car Insurance
There isn’t one set price that every single person pays for a car insurance policy. Every person pays a different price because car insurance companies take each individual’s unique profile into account when figuring out how much to charge. A number of factors go into these calculations to make sure that the cost accurately reflects how risky a driver is.
There are a number of rating factors that car insurance companies use to determine the cost of your premium. Simply put, the less risky your rating factors are, the cheaper your auto insurance policy will be. Some factors are weighted more heavily than others, like whether you have a clean driving record. Alternatively, gender and marital status are considered less.
Here is a list of factors that auto insurance companies use to determine the cost of your policy:
Driving history
Simply put, the more car accidents, violations, and claims you have on your driving record, the higher your policy will cost. Car insurance companies use your history to calculate how risky of a driver you are, which predicts your future on the road. Reckless driving, tickets, and DUIs all negatively impact your chances at saving.
Credit score
People might disregard how important their financial health is when calculating something like the cost of an auto insurance policy, but research shows that drivers with poor credit file more claims than drivers with good (or relatively better) credit. Insurance companies typically see “bad credit” as a rating between 300 and 579. “Good credit” is between 580 and 800.
Age
This is a significant rating factor that mostly impacts young drivers, who are new on the road. It is tied to years of driving experience, where the more experience you have on the road, the less likely you are to make mistakes while driving. The most expensive insurance policies are usually paid by teen drivers, while drivers over 50 years old pay the least.
Insurance companies see teen drivers as the riskiest and most expensive policyholders to insure. Data shows that teen drivers are the most reckless and get into more accidents than any other age group. Thankfully, young drivers can start seeing more savings at the age of 20, and rates get even better at age 25. Premiums reach the lowest for drivers in their mid-50s, before becoming more expensive again for drivers who are 70 years and older.
Location
Two pieces of your location are taken into consideration: state and ZIP code.
State
Each state has its own laws to regulate insurance policies that auto insurance companies need to take into account. For example, some states are no-fault states and require all drivers to add unlimited personal injury protection (PIP) onto their policy. Policyholders in these states can expect to pay more for their coverage because of the added unlimited PIP.
Insurance requirements and state minimums vary by state, so ask an agent what you might need in terms of collision coverage, comprehensive coverage, property damage liability, bodily injury liability, and more. Full-coverage car insurance isn’t necessary for everyone, and removing it can help cut costs.
ZIP code
Your neighborhood can also determine how much you pay. In most cases, insurance costs more in places that have more drivers, like urban areas, because a higher concentration of drivers means a higher risk of accidents. Living in areas that are more prone to natural disasters, like floods or fire, or crimes, like vandalism or theft, will also cause your policy to go up.
Gender
This factor mostly impacts young drivers because insurance companies see young male drivers as significantly more reckless. This makes them more prone to risk, and therefore, they are more expensive to insure. Young female drivers are seen as relatively safer than young male drivers, which gets them lower rates.
Marital status
This has a minimal effect on how much you pay for your policy, but data shows that married drivers file fewer claims. This might be because partnerships are more likely to split up driving and tasks, causing less of a reason to get behind the wheel. There is a very minor difference in rates for married, divorced, single, and widowed drivers.
Vehicle
If you drive a brand new sports car, chances are that your premium will be more expensive than if you drive an old Honda Civic, for example. Cars that cost more to replace and repair also cost more to insure. Expensive vehicles are usually charged more for collision coverage and comprehensive coverage in their insurance premiums.
The same person can get different insurance quotes from different companies. This is why it’s important to shop around when looking for a policy. Every insurance company has its own way of calculating how much car insurance premiums cost, but they usually take the same factors into account when deciding how much—or how little—it will be.
