What Determines Your Car Insurance Rates?

Do you know how your auto insurance company arrived at your car insurance rate? For years now, auto insurance breakdown has been unknown to many, and has been something left exclusively to experts. Thousands of auto insurance policy holders do not know how their premiums were arrived at. Various practices have been used in the past to determine insurance quotes, some of which were criticized as being unfair on the consumer. A number of factors are considered when insurance quotes are calculated, but what exactly are they?

In most cases, state jurisdiction determines whether premiums on car insurance are set by insurance companies or the government. Either way, a framework is put in place by the government to guide the whole process of determining insurance quotes for motorists. In this light, several factors influence the final quote. These are:

This is one of the basic factors used to determine insurance premiums. All insurance companies keep statistics on vehicle models and the relative claims experience for each. Rate of injury, cost of repairs, theft cases and even the cost of the vehicle is used to establish the risk of a particular car make and model. The vehicle’s value is also determined before the coverage amount is arrived at.

You will notice that older cars will cost less to insure while newer cars will cost more to insure. Also, if you choose to buy modified and high performance cars, it will be difficult to insure them, and most likely the rates will be high.

All these factors vary with every type of vehicle, and are used to arrive at the risk involved. It is possible for a person to have the risk factor calculated before buying a car in order to regulate the insurance coverage amount. When seeking a quote, you will want to provide the very fine specifications of the car you are looking to insure in order to get the most accurate rate.

Insurance companies pay attention to the geographical region in which your vehicle will be used. Specifically, the place of parking cars and the driver’s residence are scrutinized for any history of risk factors. However, in a more general sense, highly populated regions such as cities will attract higher premium rates compared to non-metropolitan places, because of the high likelihood of theft, accidents and vandalism.

When shopping for quotes, your ZIP code will help the company from which you are requesting a quote to determine the rates you are likely to be charged basing on the statistics of the area specified.

Every automobile owner has the option of selecting the deductible and coverage limits when purchasing automobile insurance. A deductible refers to the amount of money you pay in case of a claim against your insurance whenever you cause an accident. An individual chooses the amount of money to pay, and the insurance company will pay the rest. Therefore, the higher the limit of deductibles you choose, the lower the premium will be set. Most states set the minimum coverage to be purchased for third party liability.

Deductible and coverage limits are about the level of risk you want your insurance company to take in case you get involved in an accident, and you are at fault. Lower limit coverage and a higher deductible means you will end up with lower premiums and vice versa. Drivers can use this factor to select the most appropriate deductible. For instance, if you stay in a highly populated city, chances of accidents are high; therefore, a lower deductible will be a wise choice. However, your premium will end up being higher.

The number of years a driver has driven under a license and any previous experiences to do with insurance companies have a significant bearing on the insurance premiums you the insurance company will arrive at. At-fault accidents tracing down six years in the past are will definitely be factored in the calculation of premium. Violations such as DUI (Driving Under Influence) contribute to the skyrocketing of insurance premium rates.

On the other hand, drivers with clean driving records enjoy lower premiums. Safe and defensive driving are some of the factors that swing the premium determination to the lower side. Drivers with no at-fault accidents on their records or any convictions are usually rewarded by low premiums as a way of reducing accidents and subsequent claims.

Auto insurance companies research on various factors to do with types of vehicles and the behavior of drivers. Age is one of the variables studied. For drivers, it can prove to be either an advantage or a disadvantage when insurance premiums are determined. Younger drivers, mostly below 25 tend to get higher rates compared to older ones. This is because prevalence of at-fault accidents is high in young drivers.

Don’t be surprised to find that the exact same policy will have varying costs depending with the insurer. It is because different insurance companies use different ways to evaluate risk and end up charging varying premiums for the exact same coverage. In addition, insurance companies usually have different offers and discounts on their premiums.

Statistics show that certain demographic groups show trends of being bad drivers or commonly get into accidents more often than others get. If you lie in a certain demographic group that is considered high risk, you are likely to pay higher premiums.

a) Gender And Car Insurance Premiums

Which sex produces the better drivers, female or male? This is an age-old debate and if we start it over again we’ll never finish it here. However, women are, according to statistics, considered to be safer drivers than men. The basis of this is that women adhere to the law more closely than men do. Males aged between 16 and 25 are usually put in the bracket of the highest risk and are likely to pay high premium rates.

b) Marital Status And Car Insurance Premiums

I know you enjoy being single. It is a good time for many but be prepared to face the insurance company. Majority car insurance companies will reduce premiums for drivers who are married, and do not consider it as discrimination. Statistics, according to them, show that married people improve their driving and become safe drivers. Most married people also combine their auto insurance policies and therefore benefit from multi policy discounts.

c) Age, Profession, Educational Attainment and Car Insurance Premiums

As discussed earlier, men aged 16 to 25 are a higher risk according to auto insurance and will attract higher insurance premium rates compared to older people. Other factors such as education and profession also play their role albeit minimal.

Bear in mind that when you apply for auto insurance coverage, your credit score will have an impact on the final rate on your premium. Insurance companies carry out a search on you using credit reference bureaus and use the information as a factor of risk when determining your car insurance rates. Normally, a higher score will land you a lower premium rate.

Make a deliberate effort to make your car safe against theft, accidents and other risks. Install anti theft alarm kits as a precaution against theft, antilock brake systems to minimize accidents, and other appliances as well as precautions that will reduce the risk factor. This will have a reduction impact when determining your car insurance rates.

Most insurance companies will offer discounts depending on the number of cars and drivers you are taking coverage for. In most cases, the more vehicles you insure the better the discount you will enjoy. In addition to the number of cars, you will enjoy low auto insurance premium rates if your mileage is low. The logic is that the more you drive, the higher the chances of getting involved in an accident or incident than when you drive less. These two situations correspond to the risk factor auto insurance companies peg on you when determining your car insurance rates.

These are the 10 factors that determine your car insurance rates because they are the major factors that are considered by auto insurance companies when calculating risk and arriving at premium rates. A few other variations can add to these, such as federal laws and customization requests. However, the final rate will be determined majorly by the factors above on What Determines Your Car Insurance Rates.