Top 13 Factors That Affect Car Insurance Rates

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Top 13 Factors That Affect Car Insurance Rates

You might not actually believe this, but car insurance providers don’t just set auto insurance rates arbitrarily; they are, in fact, well-thought-out calculations. Auto insurance companies input your personal information, as well as a company, claim data into their algorithms to make an educated guess on your chances of filing a claim or, to put it in a different way, how much you are likely to cost the insurance company. The riskier you seem to be, the higher your car insurance costs and the safer you seem to be, the less you are likely to pay. Risk factors such as your credit history might not be too obvious, but insurance providers have statistical data backing up the reasons why they prefer using these rating factors.

Top 13 Factors That Affect Car Insurance Rates

What Are the Rating Factors?

Insurance premiums typically start out with a base rate that’s based on a wide category of drivers, such as males under the age of 30 living in Los Angeles, California. The insurance companies would then further look at individual rating/risk factors likely to affect your likelihood of filing a claim.

The key rating factors when it comes to car insurance include:- Age- Marital Status- Miles drove annually- Vehicle use- Vehicle type- Prior insurance coverage- Claims history- Credit history

– Driving record

– Years of driving experience

– Geographical location

Each of these factors is weighed separately.

Marital status might not affect your claim probability as much as your geographical location, which means that it will carry less weight with your insurance provider. Each insurance provider typically weighs different factors differently, which is the reason why auto insurance providers usually come with different premiums for the same individual. Insurance companies also look internally into their claims data as part of the process. One insurance provider might have fewer claims for your vehicle model and thus offer a lower rate than a different provider. Due to the differences in calculation by the various insurance providers, it is advisable to shop around for the best rates possible.Your auto insurance rates may either reduce or increase whenever there’s a change to any of the risk factors.


1. Location

Insurance companies usually start by asking for the ZIP code since where you live is the start of most base rates. If you live in a highly populated, urban area, then accidents, congestion, and insurance claims will be more prevalent. Driving and living in an urban area means higher rates than if you live in a rural area where you are less likely to be involved in a car accident due to these factors.From your ZIP code, car insurance providers can determine the rate of stolen vehicles in your location, damaging weather, vandalism cases, and the number of claims. All this helps them better determine the risks associated with ensuring you and your vehicle in that ZIP code.However, not all states allow your location to be a major rating factor. For instance, California law requires insurance providers to calculate rates on the basis of your driving record, years of experience, and annual miles driven before they consider your location.

2. Age

In the auto insurance industry, the motto The younger the driver the higher the rates” is highly applicable. Statistically, young, novice drivers have been proven to be easily distracted, immature behind the wheel, and more likely to get involved in accidents, which makes them the riskiest demographic to insure. Rates drop at different times depending on the insurance company, but you can expect your rates to drop by as much as 20 percent once you reach 25.

According to the Insurance Institute for Highway Safety (IIHS), drivers between ages 30 and 69 are far less likely to be involved in accidents. If you maintain a clean driving record, car insurance rates usually plateau for drivers until they become senior drivers.

Young and elderly drivers are usually the ones that pose the greatest risk and therefore pay more. Studies show that senior drivers tend to have slower reflexes, which is why their crash rates are much higher. The Center for Disease Control (CDC) also points out that the risk of being killed or injured in a car accident increases as one age.

Here are the states that don’t allow insurance companies to use age as a rating factor:- Massachusetts- Hawaii- California (However, insurers can rate on years of driving experience, which means that those with less experience pay extra)

3. Gender

Nearly all the states allow insurance providers to rate on the basis of gender because crash statistics are different for men and women. According to the data that’s currently available, male drivers are far more likely to crash, particularly in the early years of driving when they tend to be more aggressive as novice drivers.

The IIHS has noted that men generally drive more miles compared to women and also tend to be associated with riskier driving behavior such as driving while under the influence of drugs or alcohol, speeding, or not using a seat belt. The IIHS also found that accidents that involve male drivers are usually more severe than those involving female drivers. Insurance providers review this information and rate accordingly.

However, it does not mean that male drivers will always pay higher rates compared to female drivers. Gender differences in fatality risk usually reduce with age. Once men and women get into their 30s, the car insurance rates become generally comparable for both of the sexes with most insurance providers and may even allow male drivers to get marginally lower rates compared to female drivers depending on their own data. As drivers age and start getting into their 60s, the rates for male drivers start increasing once more compared to those of female drivers since crash statistics reveal that men of an older age tend to crash more than female drivers.The following states don’t allow gender to be used as a rating factor:

– Pennsylvania

– North Carolina

– Montana

– Michigan

– Massachusetts

– Hawaii


4. Marital Status

Married couples have been found to be statistically less of a risk to insurance companies than single people including the widowed and the divorced. Married couples have been found to be safer and less active compared to single drivers, which results in fewer accidents and claims. According to a study that the National Institute of Health conducted, single drivers are twice as likely to crash as their married counterparts.

Auto insurance rates are usually anywhere between 5 and 15 percent lower for married coupled because of their marital status. A married couple is also more likely to get discounts when they combine policies, such as a multi-vehicle discount and a multi-policy discount for bundling renters or homeowners policy or other policies and car insurance with the same provider. The only state that does not allow car insurance companies to use marital status as a rating factor is Massachusetts.

5. Driving Experience

The reality is that inexperienced drivers pose a greater risk on the road. Anybody that has not driven a vehicle is automatically a higher risk to auto insurance providers, whether you are 16 or 50 years of age.

Teenagers are the single largest category of inexperienced drivers and usually pay the most since their inexperience and age are a double-whammy. A 35-year-old getting a license is assumed to have a higher level of maturity compared to a 16-year old behind the wheel, which means that he/she gets a lower rate.

The higher the number of years that you have under your belt, the better. Even better for your wallet is if you have been licensed for a long time and have maintained a clean driving record. Having such a combination will help you get better rates as well as discounts for being a careful driver.

6. Driving Record

Your driving record is of great importance to car insurance providers since your behavior behind the wheel determines your risk to the insurance provider. A driver with a clean driving record is likely to qualify for better rates and will be eligible for a safe/good driver discount, which is generally quite good.

Drivers that have a moving violation such as a DUI, speeding, etc. or an accident on their motor vehicle record are regarded as posing a greater risk, which translates to higher car insurance rates.

A minor violation, such as a speeding ticket, is likely to affect your rates by anywhere between 20 and 40 percent. With some insurers, your first ticket might not result in higher rates, but it is likely to cost you your good driver discount (Which is sometimes up to 30 percent). Having a major violation such as a DUI can translate to rates increasing by 100 percent or more due to the combination of increased rates and lost discounts. Multiple accidents or violations can make you uninsurable according to the underwriting rules followed by some car insurance providers. However, you can still find insurance, even though it will probably be with a nonstandard insurer and will cost more until the incidence falls off your motor vehicle record.

7. Claims Record

Insurance providers don’t just look at your driving record but rather also gather data on the claims that you have made either with them or prior auto insurance providers. At-fault claims are likely to translate to a surcharge, which comprehensive claims and not-at-fault collisions might not. The amount of money that was paid out is analyzed because claims under a specific amount, such as $1,500 can keep you from a surcharge.

The number of claims that you have had is also an important consideration for insurance providers. If you have had 3 claims in 3 years, car insurance companies will view you as being too risky and may either choose to increase your rates or not renew your policy once it expires.

8. Credit History

It might be a controversial point, but research reveals that people with lower credit scores i.e. less than 600 are more likely to commit insurance fraud, file exaggerated claims, or file more claims. You are likely to see an increase in premiums if you have a low credit score. Consumers are obviously not fond of this practice and some states actually prevent insurance companies from using credit history as a rating factor.

Your credit history and rating can also affect how insurance providers allow you to pay for the policy. Statistically, customers that have lower credit scores are more likely to miss payments, which is why insurers are likely to ask for a percentage of the policy up from. If you have a very poor credit score, you might find yourself paying the entire 6-or 12-month premium up front before the policy is issued.

The following states don’t allow the use of credit history and scores as a factor:

– Massachusetts

– Hawaii

– California

9. Prior Insurance Coverage

Insurance providers often find that people without a lapse in coverage are less likely to get involved in accidents, so having a continuous car insurance history can help you get better rates. It does not matter whether the prior policy was with the current insurance company or a different one, although you are also likely to earn a loyalty discount if you keep continual coverage with the same provider.

If you were previously on your parent’s policy, you should let the new insurer know so that it does not appear that you were without prior coverage when you apply for your first individual policy.

Having a lapse in coverage of even a single day can result not only in higher car insurance rates but also will get you penalized if you live in certain states.

If you are going out the country for several years, always keep a non-owner’s auto policy, which is usually quite inexpensive. For a stored vehicle, you can see about how to reduce coverage to perhaps just comprehensive but still keep your auto policy active.

Type of Vehicle

The type of vehicle that you drive will affect your rates since the way in which a particular driver drives these types of vehicles will differ. If the insurer’s data says that drivers with your vehicle model have filed more claims or have been in more accidents, you are likely to pay higher rates.

Other factors determined from the vehicle model:

– Accident rate

– Repair cost

– Theft Rate

– Buying price

Safety tests

Simply because a vehicle performs well on safety tests it does not mean that insuring it will be cheap. Vehicles with additional safety features, such as collision warning systems may attract higher insurance costs if it costs a lot to replace or repair the feature. For most insurance providers, there just is not enough evidence that the extra features are worth a discount.

10. Vehicle’s Use

Insurance providers would also like to know why you are driving your vehicle. A vehicle used primarily for commuting to school or work tend to pose a greater risk compared to a vehicle that’s only taken out of the garage once a week. A vehicle’s personal use costs less than business use because the people that use their vehicles for business purposes have higher chances of being involved in accidents due to the increase in driving time. If the vehicle is used for ridesharing, find a policy that actually covers that. Ridesharing and business policies might cost more than personal policies but that’s due to the fact that the insurance company is taking on more risk.

11. Annual Mileage

The less you drive the lower your chances of being involved in an accident.

The insurance company can also attempt to determine if you head into a metro area from your suburban or rural home based on the length of your commute. For example, if you live outside Atlanta, but you commute 30 miles, your insurance provider can predict that while you live in a low-risk area your commute into a densely populated metropolitan area is likely to put you at greater risk.

You should let the insurance company know if your annual miles are driven go either down or up since this may help you save money.

12. Car Insurance Coverages and Deductibles

The more type of coverage that has higher limits that you have, the more you will be expected to pay because the insurance company is taking on more risk by offering coverage. Check the requirements in your state, not forgetting that minimums don’t necessarily cut it in case of a serious accident and don’t forget to compare quotes to check whether extra protection and coverage make sense for your financial circumstance.

Here are the key coverage components of a policy:- Personal injury protection or medical payments- Underinsured/uninsured motorist- Comprehensive and collision- LiabilityControl the risk factors you can you might not be able to control your gender or age, but there are several factors within your control. Maintain a clean driving record, invest in a vehicle whose insurance doesn’t break the bank and remember to select the right coverage for your needs. Simply because your rating factors are not perfect, it does not mean that you can never get better rates. Different insurance providers weigh your risk differently, so ensure that shop around 1 to 2 times every year. Find an insurance company that’s pricing competitively for your unique combination of factors. Rate quotes sometimes vary by hundreds of dollars if not more.

Strive to keep your insurance provider happy by doing the things that make you appear less of a risk and both you and your wallet will be happier too.

13. Deductibles And Auto Insurance Coverage

The truth is that the more covers you have with the highest limit, the more it will cost you. This is because the insurance company is taking additional risks to give you additional coverage. As such it is wise to check your state requirements. However, it is important to note that minimums will not necessarily protect you in a serious accident. You should consider comparing quotes to determine if extra protection makes sense for your financial situation.

Below are the key coverage components of any policy:

  • Comprehensive and Collision
  • Liability
  • Uninsured/underinsured motorist
  • Control which risk factors you can
  • Personal injuries protection (PIP) and Medical payments
  • You may not be able to control your gender or age, but there are other factors you can

Always remember to have a clean driving record, purchase an affordable vehicle, build a good credit score as well as choose the right cover.

You should also know that just because your rating factors are not perfect, it does not mean that you cannot get a better rate. It is important to know that different car insurance companies rate risks differently and it is wise therefore to research at least one or twice a year. Look for an insurer whose prices are competitive for a particular combination of factors.

Try as much as possible to keep your insurance company happy by posing less of a risk, through factors that you can control. This will, in turn, help you lower your premium rate low.

Author: Will Robins