Joanna Johnson
Car Insurance Expert
Updated: 01/2020
Joanna is an expert on understanding how the different laws and regulations in the car insurance industry shape the way that policies work.
Have you wondered why you pay a certain amount for auto insurance while your neighbor or spouse pays a different amount, yet you all have the same vehicle model? The variation in cost depends on how insurers calculate insurance premiums.
If you recently requested an auto insurance quote using your zip code, chances are that insurance providers requested personal information concerning your lifestyle, driving history, etc. Actually, these things play a critical role in determining your insurance costs.
Unfortunately, only a few drivers take time to shop for new auto insurance policies and only a third of the population changes insurers. The implication is that many people are paying higher premiums for benefits they could get at a cheaper cost. it is important to know the key factors that affect your vehicle insurance premiums.
Nearly all insurance companies use similar variables when determining prices of auto policies, but each insurance firm has its customized underwriting guideline and unique formula for setting auto insurance rates. For this reason, you may find different prices for the same auto policies. Read further to understand the main factors that insurance companies take into consideration when calculating their auto insurance rates.
Demographic Factors
1. Where you live
When costing for your auto insurance, most insurance companies place significant weight on where you live. These companies have a full risk profile of your address. They often study things such as your neighborhood’s density, weather patterns, crime rates, and the number and frequency of claims filed from your location.
It is unsurprising to find noticeable variation in insurance rates between different neighborhoods in the same city. Areas with higher cases of theft usually attract higher premiums. Typically, people living in urban areas pay a higher premium for their vehicles than those who live in the countryside due to higher rates of crashes and vandalism witnessed in the urban areas.
2. Age, sex, and marital status
Your age, marital status, and even gender will impact on the cost of auto insurance. Young drivers tend to drive more carelessly, so they are more likely to cause accidents than older drivers. Most young drivers are also less experienced. Insurance companies, therefore, see young drivers as an expensive category of customers. Consequently, they pay higher premiums.
Besides age, your marital status contributes to your cost of insurance. Married people are likely to cause fewer accidents than the people who are unmarried. Insurers will, therefore, charge you a slightly lower rate if you are married. Some companies may consider dropping the rate for married couples even if they are less than 25 years old (young drivers). Besides this, studies have shown that female drivers are less likely to cause automobile accidents than male drivers.
As you approach your twilight years, your propensity to cause accidents increases, so you may pay higher premiums. Fatal crash rates are higher at 75 – 80 years.
3. Profession
Some insurance companies may find the relationship between different occupations and the likelihood of causing accidents to help them to determine auto insurance costs. Professionals such as journalist and delivery drivers, who usually have work profiles that require more traveling, are more likely to be on the road are more exposed to risk. On the other hand, professionals such as airline pilots may spend less time on the road. Similarly, paramedics, insurance underwriters, and police officers are considered more careful drivers. These professionals often receive a discounted rate.
4. Credit score
Most insurance companies use credit score as a costing factor. While there is no clear point at which credit rating starts to take effect, a lower credit rating usually inflates your insurance costs. Insurance companies use credit rating to calculate the possibility of a claim. Research has shown that people with low credit ratings are prone to filing higher claims.
Lifestyle and Driving Habits
5. Driving Record and Claim History
This is a more straightforward rating factor. From your past driving record, insurance companies can predict your future performance. A history of crash-free driving record will attract discounts while a history of violation, will see you paying higher rates.
Tickets and traffic offenses are not the only things that can inflate your insurance premium. Insurers also check on the number of claims you have filed in past years. If you were at fault in most of the claims, the company will hike your insurance cost.
While you may have a clean record, don’t get complacent to ensure that you get even better rates in the future. And, if you have a crash in your driving record, let it be a reminder to remain vigilant. While you cannot erase your past reckless driving, you can reduce its impact; over time, the impact of your past crash history on insurance cost will reduce. In most cases, violations may cause an increase in your premium for at most five years.
6. Vehicle use and how often you use it
Some insurance providers can adjust your premium based on the mileage you cover and where you drive. Business commuters, for instance, usually drive for longer distances on high trafficked roads throughout the year. This makes them more accident-prone. Borrowing from this analogy, some insurance companies may increase premiums if you have a higher annual mileage. Your provider may give you a discount if you rarely use your car to commute to work.
Vehicle-Related Factors
7. The type of vehicle you drive
The make and model of the vehicle you have plays a huge role in the calculation of premiums. Sports automobile and other premium brands usually attract higher premiums. Pricier cars are usually costly to repair because their parts are expensive. They also are more likely to attract prying eyes. However, you can lower the premium by fitting safety features such as an alarm.
Besides the high-end models, old and poorly serviced cars are also expensive to insure because insurance companies usually consider them as hazardous to other drivers. These vehicles are more likely to be totaled in case of an accident; this translates to higher insurance costs. Classic vehicles usually attract a good collector car insurance rate because their owners have a history of high-quality maintenance.
8. Safety rating
If you have a car with a low safety rating, you are likely to pay a higher premium and vice versa. Lower safety rating means a higher risk of injuring your passengers, which can lead to high medical bills. The safety rating covers several elements such as the likelihood of passengers getting injured in case of an accident and the likelihood of the vehicle causing an accident. To determine the safety rating, insurance companies usually consider safety features such as traction control, automatic seat belts, and airbags, and then adjust the premium accordingly.
Insurance Coverage Options
9. Type of coverage and deductibles
The amount of limits you set for your auto insurance has a bearing on the cost. You may need to adjust the limits on some coverages to suit your needs, but you should be aware that the more coverage you need for your car, the more you will pay in premiums.
The reasoning for this is simple. When you have more coverage, your insurance provider carries more risk since it must gather for the higher coverage limit. In most cases, states have their basic auto insurance coverage. The most common ones are collision coverage, uninsured motorist coverage, and comprehensive coverage. Deductibles also can reduce or increase the premium you pay. Setting a lower deductible means you will pay higher premiums.
10. Discounts
Whether or not you qualify for an auto insurance discount is largely dependent on the insurance company and the different rating factors. If you have a clean driving record, purchase your auto insurance as a bundle with other covers, or pay your premiums in one instalment, your insurer may extend a discount, which lowers the final auto insurance cost.
Control what you can
Apart from age, gender, and marital status, you have more control over many other factors that affect the cost of auto insurance. By optimizing on these factors, you will increase your chance of minimizing the cost of your insurance.
Even if common rating factors seem not to favor you at the moment, it is not the end of the road. Remember that insurers vary significantly in the way they weigh different factors. It is, therefore, important to look for an insurance company that provides the best pricing for your combination of strong factors. Again, your agent can help you identify the limits, coverages, and deductible level that suit your car. Moreover, most insurers give additional discounts if you buy auto insurance as part of a package.
FAQ
General Car Insurance Questions
This section answers general questions about car insurance.
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What do you need to buy car insurance?
You’ll need information about your car, your driver’s license number, home address, address where the car will be stored, and any other information the company requests.
How do I get car insurance before I buy a car?
What is gap insurance when you buy a car?
Gap insurance covers the difference between what you owe on a financed car and your car insurance payout should you get into an accident.
How long do you have to get insurance when you buy a car?
Depending on your state and current insurance situation, you might have anywhere from one week to zero days to get car insurance when you buy a car.
How much car insurance should I buy?
Where to Get Car Insurance
This section answers some of the most popular questions about where to get car insurance.
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Where can I buy gap insurance for my car?
Dealerships are the most common supplier of gap insurance for cars. You can also try your standard car insurance company, as many offer gap policies.
Where can I buy temporary car insurance?
Most insurance companies offer temporary car insurance. However, you usually need to contact the company directly to get this particular product.
Where is the cheapest place to buy car insurance?
There’s no single cheapest place to buy car insurance. We recommend using a price comparison tool to make sure you’re getting the best deal. We also talk about other ways to save on car insurance.
How to Get Car Insurance
We’ll answer your questions on how to get car insurance in this section.
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How to get car insurance online?
The best way to get car insurance online is with a search and comparison tool. There are lots of these tools available to help you find the right car insurance.
How to buy car insurance online?
You can buy car insurance online using a third-party comparison tool or directly through most insurance company’s websites.
How to buy car insurance for the first time?
The best way to buy car insurance for the first time is using a comparison-shopping tool to help make sure you’re getting the best rate.
How to buy third party insurance for car online?
Online search tools are the best way to get third party car insurance online as they will show you multiple options so you can pick the rate that works for you.
When to Get Car Insurance
This section covers common questions about when to buy car insurance.
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When to buy car insurance for used car?
You should buy insurance for your used car before you drive it for the first time. That way you know you’re driving legally and are covered.
When is the cheapest time to buy car insurance?
The cheapest time to buy car insurance is right after you get a credit score boost. That will show you’re less of a risk to not pay your bill, lowering your rate.
When you buy a new car do you need insurance?
Yes, most car dealers will require you to have new insurance before you take the car off the lot. You can easily switch insurance to your new car by calling your insurance company.
General Questions About Auto Insurance Premiums
We’ll answer general questions about factors that affect auto insurance premiums in this section.
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What is a car insurance premium?
A car insurance premium is the fee that you pay for car insurance. You can pay it monthly or pay for a six- or 12-month policy upfront.
How to calculate car insurance premium?
There are lots of different factors that go into your car insurance premium. Each company has its own formula for calculating premiums based on lots of different factors. If you have found insurance with no money down then that would save you money up front.
What happens if you don't pay your car insurance premium for your vehicle?
If you don’t pay your car insurance premium, then at first you’ll be hit with a late fee. If you continue to not pay, then you’ll lose your insurance and will still have to pay the remainder of your balance.
What is a policy premium car insurance?
The policy premium for car insurance is the amount you pay to have car insurance. You can pay the premium monthly or all up front.
What is a renewal premium car insurance?
The renewal premium for car insurance is the amount of money you need to pay to renew your car insurance policy.
What is an annual premium for car insurance?
An annual premium for car insurance is the amount that you pay every year to insure your vehicle.
What is the medical portion of auto insurance premiums in Michigan?
The medical portion of auto insurance premiums in Michigan is the amount you pay for medical coverage on your insurance policy.
What is 6-month premium car insurance?
A 6-month premium for car insurance is the amount that you’ll spend upfront to have car insurance for the next six months. Some people choose even shorter terms like 1 week car insurance if they only need it for that time period.
Why is it important to compare auto insurance premiums?
It’s important to compare auto insurance premiums because that tells you how much you’ll be paying for insurance. Comparing premiums prevents you from paying too much.
Factors that Generally Affect Auto Insurance Premiums
This section covers questions about things that can generally affect car insurance premiums.
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What determines car insurance premiums?
There are lots of different factors that go towards determining car insurance premiums. These include things like your age, driving experience, driving record, credit score, continuous insurance coverage, and more.
What factors affect auto insurance premiums?
Every state has different rules for what car insurance companies can use to determine insurance premiums. These factors generally include things like gender, driving history, recent accidents and/or claims, your car, your address, etc.
How will a car insurance claim affect my premium?
That depends on the nature of your claim and your specific policy. You’ll need to talk to your insurance agent to get more information about how a claim will affect your premium.
What aspects of a car affect insurance premiums?
The main aspects of a car that affect premiums are things that influence its safety. Faster, lighter cars are going to be more expensive to insure than slower, safer cars.
How much would my car insurance premium increase for an accident that was not my fault?
That depends on your state’s laws and your specific insurance policy. You’ll need to talk to your insurance agent to find out more information about your specific situation.
Which states ban the use of credit scores in auto insurance premiums?
Massachusetts, California, and Hawaii are states that ban the use of credit scores in calculating auto insurance premiums.
My wife has only been licensed for 3 years. how will this affect my auto insurance premiums?
It depends on your specific situation, such as your and her driving record, the cars you each own, etc. Adding another person may decrease the premium per person on your policy. However, if your wife has had accidents or tickets in those three years, then it could increase the cost of your policy.
Factors that Affect Auto Insurance Premiums in Specific States
Every state has its own insurance laws. This section answers your questions about how the laws of specific states affect insurance premiums.
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What criteria is used to determine car insurance premiums in the state of GA?
The state of Georgia allows a wide variety of criteria to be used to determine insurance premiums, including address where a car is stored, driving history, credit score, and continuous insurance coverage.
How are auto insurance premiums calculated in MA?
MA provides several guidelines for what can and cannot be used to determine auto insurance premiums, however each company operating in the state calculates premiums using their own method within these guidelines.
What does tier 15 premium auto insurance in NJ mean?
Tier 15 is a New Jersey specific classification that insurance companies use to determine what kind of rates to charge you. For more information on cheap car insurance in NJ read our full review.
Factors that Affect Auto Insurance Premiums with Specific Companies
This section answers your questions about how specific companies set auto insurance premiums.
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How does AAA determine car insurance premiums?
AAA uses any information allowed by state and federal law to determine your car insurance premiums, including your driving record, type of car, age, gender, and so on.
Why premium increase on Geico auto insurance?
There are lots of reasons your Geico premium could increase, including new claims against you, expiration of deals, and other factors. You’ll need to ask your agent about your specific policy.
I forgot to pay my car insurance and the premium expired through Farm Bureau, how do I get it back?
You’ll need to pay your remaining balance and reapply to the company if you want to get your car insurance back after it was canceled for non-payment.
Factors that Increase Insurance Premiums
We’ll cover your questions about factors that increase auto insurance premiums in this section.
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Why do car insurance premiums increase?
There are lots of reason your car insurance premiums could increase, including a change in job, address, driving record, car, or just the cost of insurance in your area. You’ll need to contact your auto insurance company to get the specifics on your case. Read more about how to find cheap car insurance.
How much does one point increase auto insurance premium?
There are lots of different factors that go into determining auto insurance premiums, so there’s no way to know how one point will increase your premium. You’ll need to talk to a representative from your company for more information and perhaps ask them about auto insurance with bad driving record options.
What does premium adjustment lapse mean for auto insurance?
Premium lapse means that you didn’t pay your auto insurance bill, causing you to lose insurance. This will cause the cost of your insurance to increase.
How much does car insurance premium go up after a claim?
The amount your insurance premium goes up after a claim depends on the nature of the claim, the events that lead to the claim, and your previous driving record.
How much auto insurance premium increase after accident?
There’s no one answer to how much an auto insurance premium will go up after an accident. It depends on who was at fault for the accident, how much damages were involved, and additional factors.
Who has the highest auto insurance premiums?
Generally, you find the highest auto insurance premiums with companies that specialize in covering high-risk drivers.
How much higher car insurance premium go up after accident?
An accident can have lots of different effects on your car insurance premium. It depends on how much damage was done, what caused the accident, who was at fault, and so one.
How long will a DUI cause higher premiums for auto insurance?
The length of time you will have higher car insurance after DUI charges depends on the laws in your state and on your specific company’s policies. You’ll need to talk to your insurance company to get more details on your situation.
Why auto insurance companies increase premiums for no reason?
Auto insurance premiums rarely increase for no reason. Usually price increases come with an increased cost to doing business. However, the company may have determined you are a greater risk than they once thought you were.
Why my auto insurance premium went up when I turned 30?
Many different factors could cause your premium to go up when you turned 30, including a new car, new address, change in information about your address, a change in your credit score, tickets, claims, and other factors.
How much do car insurance premiums increase after a speeding ticket?
There’s no one answer to how much insurance premiums increase after a speeding ticket. How much you were speeding, your previous driving record, your car, your state, and other factors affect the amount your rate will increase.
How much does car insurance premium go up after accident college student?
College students are more likely to have a higher increase in their premiums after an accident than other drivers. That’s because college students have less driving experience, so there’s not as much good information to offset the bad in the insurance company’s calculations.
Factors that Decrease Auto Insurance Premiums
This section answers your questions about factors that decrease auto insurance premiums
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How to lower car insurance premiums?
One of the best ways to lower car insurance premiums is to ask your insurance company about programs they offer. Taking drivers education classes from a company recognized by your insurance provider is one good way to reduce your premiums.
How to reduce car insurance premiums?
Finding out what kinds of discount programs your insurance company offers is a great way to lower your insurance premium. Lots of companies give discounts for good drivers, good grades, new driver training, and more.
At what age do car insurance premiums go down?
Car insurance premiums tend to decrease every year assuming there’s no other changes for a person. The biggest decrease tends to happen after someone turns 25.
How to lower car insurance premiums for young drivers?
Signing up for a program to get discounts for good grades, and then studying to get those grades, is one of the best ways to lower insurance premiums for young drivers.
How long do I need to remain accident-free before my premium goes down for my auto insurance?
That depends on your specific auto insurance policy, driving record, state, and other information. You should contact your insurance agent for more information about your specific case.
Other Questions About Factors that Affect Auto Insurance Premiums
This section covers questions about factors that affect auto insurance premiums that don’t fit into our other categories.
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What is insurance premium tax on my car insurance?
An insurance premium tax is a fee applied by your state government to car insurance payments. This fee usually goes towards things like road maintenance and repair.
How to negotiate car insurance premiums?
The best way to negotiate car insurance premiums is to play one company off of another. You should show that another company will offer you the same policy at a lower price to get your insurance provider to lower their rates.
What is the average car insurance premium?
Keeping in mind that this changes a lot depending on the state you live in, the average insurance premium rate across the country is about $118.63 per month.
Should I switch car insurance when my premium goes up?
Possibly. You should at least shop around to see what other insurance companies offer you. It may be the case that, even with a higher premium, your current company is still the cheapest option.
Why do you have to have premium insurance for a new car?
You need to have comprehensive coverage for a car that you’re financing to ensure that the loan you took out to buy the car gets repaid even if the car is totaled in an accident.
What is car insurance premium refund mean?
A car insurance premium refund is the money you get returned when you change insurance policies after paying upfront for your original policy. It represents the coverage you didn’t use.
What is a policy premium credit on a canceled car insurance policy?
The policy premium credit on a cancelled car insurance policy is an amount that you’ve already paid toward insurance that can be used towards future payments.
How long will a lapse in auto insurance hurt my premium?
That depends on lots of other factors. You’ll need to talk to your insurance company to get a specific answer. Keep in mind that the company may or may not be willing to share how they calculate rates with you.
What happens when I finish paying my car insurance premium?
When you finish paying your car insurance premium you’re covered on insurance for as long as the policy lasts. Once that period of time is over, you’ll need to renew or buy another insurance policy.
Other Car Insurance Questions
We’ll cover car insurance questions that don’t fit into other categories in this section.
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How to buy a car without insurance?
The rules for buying a car without insurance differ from state to state. Some states won’t allow you to buy a car unless you already have proof of insurance.
How to compare auto insurance quotes online?
There are lots of third-party price comparison sites you can use to compare online car insurance quotes and make sure you’re getting the best rate.
How to check insurance for a car online?
That depends on your situation. Most people can check if their car insurance is active but can’t check others car insurance.
How to apply for car insurance online?
You can apply for car insurance online through an insurance company’s website. Most insurers have a simple, easy-to-follow process on their website.
How to pay car insurance online?
You’ll need to check with your car insurance provider, as every website is set up differently. Most sites will at least require you to log into your account to pay your bill online.
How to check car insurance policy status online?
You should login to your account with your provider. Once you’re in your account you should be able to see the status of your car insurance.
How to renew car insurance online?
Most car insurance renews automatically. You can check by logging into your account and seeing what your renewal options are.