Home > Learning Center > How Car Insurance Premiums Are Calculated

How Car Insurance Premiums Are Calculated

Find Your INSURAMATCH



Already have a quote? Retrieve it.

 | July 19, 2016

So it’s finally time to abandon driving your parents’ car for one of your own?

For even experienced car owners, shopping for auto insurance can be a challenge - but for someone buying or leasing their first car - comparing quotes and talking to car insurance agents can feel overwhelming. The biggest question that arises is simply: How do these insurance carriers come up with all of these different cost quotes?

Well, you’re not alone in your frustration. In one New York Times article, they found auto insurance quotes can range in the several thousands of dollars depending on your background and other factors.

There are seven main factors car insurance companies look at when giving you a quote.

Your Driving Record

This one is pretty obvious, but it’s not the only factor. Lousy drivers with a history of speeding tickets, accidents, and filing insurance claims are typically quoted a higher rate than those who have cleaner (or spotless) driving records.

Age, Gender, and Marital Status

Age equals experience – at least according to most auto insurers. Statistically, younger and older drivers (people under 25 and those above 65) have a greater chance of getting into an accident than those who fall in that in between group, according to DMV.org. The U.S. Centers for Disease Control and Prevent (CDC) report that younger drivers between 15-24 represent only 14 percent of the U.S. population but they account for 30 percent of the total cost of accident injuries among males and 28 percent of the total cost among females.

And don’t believe the hype that males are better drivers, either. If you’re a female, you’ll probably get a lower premium than your male counterparts who have higher accident rates, experts say.

Also, while arguably single people may have more fun, they also pay for it insurance wise. Married couples typically get a break in their auto insurance premiums as statistics show they’re less likely to get into accidents.

Location, Location, Location

If you live in a densely populated area with heavy traffic and higher car thefts and break-ins, you’ll also pay more in premiums than your rural counterparts. If you prefer the excitement of city living, well, it’ll cost you more to have a car.

Your Wheels

Another factor in determining price has nothing to do with your background. The make and model of your car is a price point in any insurance quote. Insurance companies look at how the vehicle you want to insure performed in government and industry crash tests. Also, the more expensive, flashier cars commonly command a higher premium than the more utilitarian family sedan and economy cars. This is due to a couple of reasons, including that the replacement cost of higher-end cars is, well, higher, and these cars are usually more sought after by car thieves.

Good or Bad Credit

What your parents told you about the importance of good credit is unfortunately true (don’t you hate it when they’re right?). While this isn’t a factor in all states, many insurance carriers will look at your credit score to help determine your overall insurance score and subsequently your premium costs. To make this more confusing, this calculation may change from carrier to carrier.

"While many companies use proprietary formulas to calculate the scores, the factors used in the calculation include the customer's outstanding debt, length of credit history, payment history, amount of revolving credit versus amount of credit in the form of loans, available credit and monthly account balance," according to Investopedia.

Education

If you’re still in college or have a college degree, this may also affect your premium. Statistically, students are considered “more responsible” than other millennials who aren’t as educated.

Type of Coverage

Remember that the insurance coverage levels also determine your premiums. Most states have a minimum level of insurance required on all vehicles and these vary from state to state. The minimum levels are usually just a starting point and you’ll want to consider customizing your insurance coverage levels to adequately protect yourself in case of an accident and/or lawsuit. Moreover, you’ll want to consider additional auto insurance, such as comprehensive insurance, that may cover damage costs from vandalism, thefts, broken windshields, and weather. Finally, your deductible levels contribute to your premium costs as higher deductibles will reduce your premium while lower deductibles will increase it.

 

 

Other sources used in this story:

https://www.esurance.com/info/car/how-your-car-insurance-rate-is-determined

http://www.dmv.org/insurance/how-auto-insurance-companies-calculate-risk.php

http://bucks.blogs.nytimes.com/2012/09/27/when-non-driving-factors-affect-auto-insurance-premiums/?_r=0

http://www.cbsnews.com/news/how-men-can-beat-gender-bias-in-car-insurance/

http://www.iii.org/article/what-determines-price-my-auto-insurance-policy