Car insurance is calculated based on factors that indicate how likely a driver is to file a claim, including age, driving history, car type and mileage. Insurance companies do not release the specific algorithms they use to calculate prices, meaning that each insurer will offer a slightly different rate to the same driver.
Since each company calculates premiums using its own individual system, it’s important to get multiple quotes while shopping for insurance. Checking rates from several insurers is the best way to get the lowest price for whatever coverage you need.
It’s also important to note that car insurance is regulated at the state level, so the factors that usually go into calculating rates might not all be considered in every state.
Factors Affecting How Car Insurance Is Calculated
- Age. Teenagers and seniors are the most high-risk, although insurers also consider years of driving experience.
- Coverage levels and state requirements. Each state has its own minimum requirements for insurance, but customers can also choose full coverage or higher liability limits, along with many other optional add-ons. Consequently, more coverage will mean a more expensive policy.
- Claims history. Besides driving history, your previous claims show an insurer how often you cost insurance companies money in the past, thereby hinting at future behavior.
- Coverage history. Although it can seem unfair to drivers who previously didn’t have a car, insurance companies consider you higher risk if you have a gap in your history of insurance coverage.
- Credit History. Most insurance companies use a credit-based number called an insurance score when calculating rates, since credit is shown to correlate with the likelihood of filing a claim. However, not every state allows the use of insurance scores, and many states have some consumer protections in place to restrict their use.
- Deductible. A higher deductible means a lower premium, since your insurance company will have to pay less if you file a claim.
- Driving record. Speeding tickets, at-fault accidents, and serious violations like DUI or reckless driving indicate to an insurance company that you are particularly likely to cause damage with or to your car.
- Gender. Young male drivers are the most expensive to insure, although the gender-based difference in price gradually evens out. As with insurance scores, some states have banned the use of gender as a rating factor.
- Location. Certain areas are low in crime and less of a risk to insurers, while others have plenty of traffic, high crime rates, and/or destructive weather.
- Marital Status. Premiums are usually cheaper for married people, since they are statistically less likely to cost an insurer money.
- Mileage and car use. The more time you spend in your car, the more likely you are to cause a crash, so insurance is often more expensive for commuters, as well as people who use their cars for business reasons.
- Occupation. Certain jobs, especially those that involve late hours and stressful environments, will make your insurance company think you are extra likely to be in a car crash.
- Storage and Parking. Depending on the insurer, you may be charged less if you park your car in a garage rather than on the street, and long-term storage policies are much less expensive than standard policies.
- Vehicle. Insurance companies judge cars on how expensive they are to repair, how likely they are to be stolen, and how fast and powerful they are.
Some of the factors used to calculate car insurance premiums are beyond your direct control, but there are still steps you can take to save on insurance. You can adjust your deductible and coverage level, for example, although you should never jeopardize your future financial stability to lower costs right now.
In addition, you can focus on improving your driving record and credit score. Looking for car insurance discounts and comparing multiple quotes will also help your wallet.
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