Car insurance isn’t cheap, so you’ll want to know what determines your auto insurance rates so you can take appropriate action and secure the best coverage at the best possible price.
According to the National Association of Insurance Commissioners (NAIC) and the Center for Insurance Policy and Research, there are several factors that affect the amount of the premium you pay, including which insurance company you choose. Keep in mind that different insurance companies use different methods to rate their risk of insuring you. As such, they may charge different premiums for similar coverage.
The following factors likely will affect your auto insurance rates:
- Driving Record – Insurers will look at your driving record, and the driving record of anyone else that will be covered under your policy, for a period of the last three to five years.
- Credit-Based Insurance Score – Most insurers use the information contained in your credit report to determine a credit-based insurance score. This is commonly done because studies have shown a high correlation between this score and the likelihood of filing a claim. Be aware that some states restrict how insurers can use credit-based insurance scores and several states ban this practice completely.
- Age, Gender, Marital Status – Statistically, people under the age of 25, males, single people and families with younger drivers in the household tend to have more accidents and pay more in insurance premiums. Similarly, accident rates and premiums tend to be higher for those over the age of 65. Keep in mind that insurance companies can base your premium on all the individuals living in your household, even non-relatives, such as roommates.
- Type of Vehicle – You can generally expect to pay more to for comprehensive and collision coverage to insure newer or more expensive vehicles. If the vehicle is a sports car or high-performance vehicle it will cost more to insure because these vehicles are involved in more accidents and thefts and cost more to repair. A large pickup truck or SUV could wind up costing you more in liability coverage because they can cause more serious damage in the event of an accident.
- Where you Live – Insurance premiums are generally higher for people who live in urban areas. That’s because there are more accidents and thefts in urban areas compared with rural areas.
- Vehicle Use and Annual Mileage – How you will use the vehicle is taken into consideration, whether for business or personal use. In addition, the number of miles you drive each year is a factor.
- Prior Insurance Coverage – If you don’t currently have insurance coverage, most insurers will charge you more to insure your vehicle. If you only have the minimum amounts of coverage as required by your state, the insurer may also charge you a higher premium.
- Previous Claims – In the event of any accident, most insurance companies report the loss to one or more private nationwide claim databases, including the Comprehensive Loss Underwriting Exchange (CLUE). Insurance companies use these claim databases to find out about any claims you’ve had in the past. Keep in mind that you have the right to a free copy of your CLUE report.
- Limits of Liability Coverage – The amount of your auto insurance rate will also be determined, in part, by the limits of liability coverage that you choose.
- Deductibles – How much you’ll pay for your insurance premium also depends on the amount of the deductibles – what you’ll pay out-of-pocket before your insurance kicks in – you select for collision and comprehensive coverage. Generally speaking, the higher the deductible you choose, the lower your premium will be.