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What factors affect car insurance rates?

Fact-checked with HomeInsurance.com

Car insurance is a necessity for all drivers. However, insurance rates are not universally consistent for all drivers, due to a number of factors. Insurance providers use a variety of criteria to assess the risk profile of drivers, which ultimately influences how much you pay for car insurance. 

Demographic factors 

As part of the underwriting process, car insurance companies use demographic factors to determine price, this can include:

Age

A younger driver will always pay more than someone who’s middle-aged because they have less experience and are more risk-prone. You have to be careful what you wish for though. If you’re a young driver and just can’t wait to continue to age so you can get better insurance rates, you better hope you don’t make it past the age of 40 or so. As all drivers age, insurance rates often go back up due to the increased risk of impaired driving resulting from old-age afflictions like poor eyesight or slowed response time in emergencies.

Gender

Typically, men pay more than women for car insurance. While it may not seem fair, insurance companies rely on hard facts and when statistics are compared side by side, women are safer drivers. Men tend to be involved in more accidents and receive more driving violations, presenting more risks for insurance companies.

Credit score

You probably never thought those late student loan payments would come back to haunt you, but if it lowered your credit score, it could raise your auto insurance rates. Some believe this is an unfair practice which ‘penalizes’ poor people like overdraft charges do, but there’s hard data to back up insurers’ reason for including this. Multiple research has shown a direct and significant correlation between insurance companies and credit scores and has shown that positive credit scores go hand in hand with safe drivers.

Additionally, insurers want long-term business on the books, and such studies have also shown that those with low credit ratings are more likely to be “transient,” not only in the sense of moving frequently but also in terms of hopping between insurers frequently. 

Where and how you drive

Location and behaviors also influence risk profiles for insurance underwriters. Here’s a closer look at what underwriters evaluate:

Where you drive

The region in which you live is the primary concern for insurance companies. Each state has its own method for determining auto insurance premiums, but even your neighborhood can affect the price you pay. If you live in a city that experiences a high number of collisions, higher premiums help offset the increased number of claims. Additionally, if you live in a city or neighborhood with a high volume of crime, your rates might be higher due to an increased risk of vandalism or theft.

How you drive

There’s no arguing this one. Whether you’re Driving Miss Daisy, a spirited new driver, or a soccer mom (or dad) driving a minivan, if you have a heavy right foot, slam on the brakes too little, too late, or too suddenly, or a propensity to ignore traffic laws, it’s a clear representation of your driving habits. Although the Department of Motor Vehicles in most states update records either annually or semi-annually, a common procedure is for state DMVs to go the extra mile and wave the red flag again in front of your insurer if you’ve had several tickets over the past two years. 

If you have enough tickets, your rates are raised because you enter the high-risk driving pool. Insurers equate speeding tickets, reckless driving tickets, and serious traffic violations like DUIs with risky behavior in general, making you more of a liability to insure.  If you’re bold enough to drive 25 mph over the speed limit or have a few cocktails before hitting the road, you’re probably more likely to play “Chicken” or engage in other risky driving behavior. Spotty driving records are a clear indicator of the likelihood of making more claims, and not only that, making claims that result in costly payouts due to the likely severity of the accident.

Your vehicle

The details regarding the vehicle you drive also matter to the insurance company. Here’s a few vehicle considerations that are accounted for in the underwriting process:

Age

An older vehicle has deteriorated in worth that it’s not of much value if you get in an accident resulting in a total loss. Meanwhile, if you’re driving a brand new, expensive sports car, insurance companies will have to pay more for replacement cost or repairs in the event of an accident. Therefore, newer cars are typically more expensive to insure. In cases where your vehicle is deemed unsafe to drive however, you may not be able to obtain coverage at all, or it will cost more than a newer model to insure.

Make/model

In all cases, the type of vehicle you drive makes a huge difference. Luxury or import brands are more expensive to insure due to the cost for repairs or replacement parts compared to domestic brands. Moreover, certain models (such as sports cars) are often associated with riskier behaviors. 

Safety features

Many car insurance companies offer discounts for specific safety features such as anti-theft devices, a safety system like OnStar, airbags and more. When you request a quote, your prospective provider will typically ask specifically for your vehicle’s safety features, so be sure to include any your vehicle has for the best chance at a discount.

Your car insurance choices

Your chosen insurance coverage will play a big role in how much you pay for your premium. Some things to keep in mind include:

Coverage levels

If you are making lease or loan payments on your vehicle, then you’ll likely require full coverage. Full coverage is also useful for newer vehicles with a higher replacement value. And the higher your coverage limits, the more your premiums will be. 

However, if you own your car and it isn’t worth much, it might not make sense to have full coverage since you’ll may pay more for the policy than what you would receive if the car became a total loss. 

Additionally, your deductible affects your premium to a small degree. Drivers who select a $500 deductible on comprehensive will pay more each month than a driver with a $2,000 deductible. 

Coverage limits for medical payments will also affect your rates and depending on which state you live in, limits are subject to be more or less based on location.

How to lower your car insurance rates

These are a few ways to effectively lower your car insurance rates:

  • Ask your current provider about any discounts you may be eligible to receive. 
  • Comparison shop among other providers annually when your policy is set to expire.
  • Maintain good payment standing with your insurance provider to prevent rate increases or penalties
  • Drive safely to reduce risk of needing to file a claim, which can increase rates
  • Bundle your auto policy with home or other policies if possible
  • Install safety devices in your vehicle for additional discounts and to reduce risk of accidents 

The takeaway: there are ways to reduce your premium, even if some factors are non-negotiable 

  • Car insurance companies use a variety of factors to influence your price
  • You have control over some of those factors, including what you drive and how you drive
  • You can secure lower premiums with discounts, safety features, and comparison shopping

Each insurance provider uses its own set of factors to determine how much you should pay for auto insurance. However, since some of these factors are under your control, you can use them to your advantage. By driving safely, paying bills on time, and insuring a moderately-priced vehicle, you can receive the coverage you need and pay less for it.

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