How Your Car Insurance Rates Are Determined
If you own a car, you are probably well aware that car insurance is a necessity— practically all states require some form of it. You might, however, know very little about how car insurance companies determine how much they charge you for coverage.
Several factors go into how your auto insurance rates are determined—some you can control; others you have little to no control over. Understanding these factors might just help you get the best rates possible.
Insurance companies typically use at least six prime factors in determining car insurance rates:
- Your driving record.
- Marital status.
- Vehicle of choice.
- Credit score.
- NOTE: Some states do not allow car insurance companies to factor your credit score into your car insurance rate.
Your Driving Record Is the #1 Factor
Your established driving history speaks volumes, and it's often the first factor that auto insurance companies consider. They typically request a record summary or abstract from your state's department of motor vehicles.
Depending on your state's laws your record will account for at least the last 36 months and will typically list:
- Tickets you incurred for speeding or other traffic infractions.
- Accidents for which you were at fault.
- Auto-related convictions such as impaired driving, vehicular manslaughter, or failure to appear in court.
- License suspensions or revocations.
Some states may carry a record of serious offenses like DUI for 10 or even 15 years. The longer your record summary is, the higher your car insurance premium is likely to be.
Insurance companies tend to view drivers at either end of the age spectrum as being more likely to have an accident.
Teens are considered the group with the highest risk, according to the Centers for Disease Control and Prevention. In fact, drivers at ages 16 to 19 are nearly three times more likely to be in a fatal car crash than drivers 20 and older. Because of this, rates tend be highest for younger drivers.
For drivers 65 or older, National Highway Traffic and Safety Administration statistics indicate that accidents are both more harmful and more likely. This is because older drivers are often more frail and thus more prone to injury, yet reluctant to cease driving. They're also more likely to be dealing with physical, visual, aural, and even mental changes.
Typically, men pay more for car insurance than women.
In short, men are generally considered more of a risk than women. According to the Insurance Institute for Highway Safety, Highway Loss Data Institute, which analyzed U.S. Department of Transportation data, when compared with female drivers:
- More male drivers die in crashes.
- Men drive more miles per year.
- Men engage in riskier behaviors like speeding, driving under the influence, and failing to use seatbelts.
- Male drivers tend to have more severe crashes.
Being married does offer benefits in the form of lower car insurance premiums because married people represent a lower risk. A landmark study originally reported in "Injury Prevention" examined data for more than 10,000 adult drivers who were hospitalized due to accidents.
Never-married individuals were twice as likely to suffer injury as those who were married or had been married at one time. In addition, the study also correlated higher-risk behaviors like driving under the influence and failure to use seatbelts to the never-married group.
The Type of Vehicle Has a Major Impact
Whether you're driving a car, an SUV, a motorcycle, or a truck, each has specific characteristics that insurance companies use to calculate your risk:
- Insured Declared Value – More expensive vehicles cost more to replace or repair.
- Safety Ratings and Safety Equipment – Vehicles with high safety ratings or enhanced safety features may qualify for discounts or lower rates.
- Engine Horsepower – High-performance, high- horsepower, or turbocharged engines generally mean higher speed capabilities, which cost more to insure even in sedans and wagons.
- Usage – Higher annual mileage, commuting, for example, equates to more exposure to risk.
- Location – Your car may be more likely to be stolen or vandalized in urban or high-crime areas.
- Age – The older a vehicle is, the more likely the driver is to be fatally injured, despite consistent seatbelt use. Newer vehicles tend to have more safety design features.
Your Credit Score Matters Too
Auto insurers pay particular attention to how you handle your everyday financial affairs. The National Association of Insurance Commissioners cautions that where state law permits, the majority of car insurers — 85 to 95 percent — use credit-based insurance scores as a risk classification factor.
Note that your insurance score is not the same thing as your credit score. Instead, it is usually a compilation of your:
- Payment history.
- Outstanding balance of debt.
- Credit history timeline.
- Applications for new credit.
- Credit type, mix, or composition.
Assessing Your Total Insurance Costs
Auto insurance quotes are the result of a composite score — a calculation of probability. While you cannot change your age, gender, or marital status just to get a lower car insurance rate, you can be a responsible driver, choose vehicles wisely, and handle your money with care.