Car Insurance Premium Rate Factors

Minimum liability auto insurance is something you’re legally required to have. Find out what factors could influence the cost of your coverage, along with ways to potentially reduce your rates.

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Driving a vehicle is inherently dangerous. According to the National Highway Traffic Safety Administration, 2.31 million people were injured and 32,719 people died in vehicle collisions in 2013 alone. These troubling numbers indicate why car insurance is a good idea. They also show why states require drivers to have some sort of insurance coverage before you hit the road.

Butt there's really no way to anticipate insurance costs when trying to calculate how much it will take to keep your car running and legal. Auto payments stay fixed, title and gas prices only go up incrementally, but auto insurance premium rates seem to fluctuate as if by some mystical formula.

Luckily, it doesn't take a math wizard to have some idea what your costs will be. You just need to be knowledgeable about how insurance rates are calculated. Premium calculations can seem like a dice roll, but in reality they are governed by some fairly consistent variables. While you might not be able to guess the dollar amount of these factors, you can still anticipate your costs. You can potentially reduce these costs by paying attention to what insurers focus on.

#1 Your Age

Age is the biggest indicator of your risk as a driver. The Insurance Institute for Highway Safety calculates that a driver between the ages of 16 and 19 will have a three times higher crash rate than that of adults 20 years and older. Teenagers who just get their license at 16 or 17 have the highest risk. They are twice as likely as 18 to 19 year olds to have a fatal crash, even when adjusting for the number of miles driven.

Because of these alarming numbers, insurers naturally see young and new drivers as having the highest risk of any policyholder. Teens can take steps to reduce these costs through actions like getting good grades and taking driver’s education courses. However, they should still expect to shell out more than their older siblings for the next couple of years.

#2 Gender

Statistically, women have fewer accidents, less traffic citations and far fewer fatal crashes than men do. These numbers are especially telling when combined with age. Teenage boys accounted for two thirds of all fatal crashes in 2013, according to the Insurance Institute for Highway Safety.

Women will pay noticeably lower premiums than men as a result, although this gap decreases as both genders age.

#3 Your Vehicle’s Value and Typical Expenses

Of course, insurers will charge larger premiums when covering more expensive cars. A Ferrari that costs as much as a house will naturally need more coverage and have higher rates than an 800 dollar Yugo.

Additionally, the expense of repairs for your vehicle will have an influence on your insurance rates, including both parts and labor. For example, vehicles like Honda Civics are easier to work on and have cheaper, more readily available parts than would a BMW.

Is your car hiking up your premium? It doesn’t hurt to compare quotes from several companies to find lower insurance rates.

#4 Your Vehicle’s Safety Record

You might not choose a vehicle based on how safe it is, but safety is very important to your insurer. They will be covering your medical costs when your vehicle is involved in a crash if you have collision insurance.

The safety of other drivers is important, too. Some cars are considered dangerous on the road, particularly to pedestrians and smaller cars. Expect to pay more in liability expenses if your large SUV could easily squash the hatchback in front of it.

Lastly, some vehicles are more prone to malfunction or losing control on the road because of various design flaws. Find out if your vehicle is one of these before buying to prevent surprises when you get your liability rate offer.

#5 Likelihood of Vehicle Theft

An expense that many do not consider is the likelihood that their car will be stolen. For insurers providing comprehensive insurance, a theft is a quick way for a policy to pay out large amounts without even a second for them to think. If you have one of the most stolen cars in America, or live in one of the cities with the highest rates of car theft, understand that your comprehensive auto coverage will likely be higher than someone whose vehicle is not on the list, or who lives in a city with less car theft.

#6 Your Driving Record

If you have a lot of speeding tickets or a history of collisions, expect your auto insurer to categorize you as a high risk. Accidents can raise premium costs between 10 and 20 percent, sometimes higher. These marks on your record also stay with you for an average of three years. Likewise, a series of speeding tickets could cause your rates to bump up noticeably, too.

Ask your insurer how they weigh incidents like these. Find out what it takes to reduce the costs. But be ready. In the end you may have no other option than waiting for the incidents to age off of your driving record.

#7 Your Occupation

Looking at correlations between your job and the amount you are likely to cost an insurer is an interesting venture. Actuaries use this data to determine whether certain occupations are higher or lower risk. People who drive for a living like travelling businessmen are obvious targets for higher insurance charges, but would you expect that doctors and lawyers have higher accident rates, too? Apparently their high-paying, well-respected jobs correspond with no small amount of risk taking, whereas scientists, teachers or artists take fewer risks.

#8 Marital Status

Married couples tend to get in fewer accidents than single people, so men that want to close the difference in premiums can consider getting hitched.

#9 Where You Live

The area you live in can actually weigh quite heavily on insurance rates for some people. Certain areas have higher traffic congestion, increasing the odds of a collision. Other areas are more prone to vehicular crime like theft or vandalism. Still, others have more people driving on the road without liability insurance, significantly increasing the costs for insurers across the board. Finally, some cities or parts of town simply have larger numbers of lousy drivers.

#10 Driving Habits

Beyond your driving record and your location, your driving habits can matter a whole lot to your coverage costs. People who rarely drive their vehicles but still need liability insurance can be eligible for a low-use policy that costs far less than the typical plan. Just do not get caught misrepresenting your actual driving habits, or your policy could be dropped.

#11 Credit History

Yes, your credit history can affect your auto insurance rates, too, in addition to just about every other financial transaction these days. Actuaries swear up and down that people with worse credit have higher accident rates. Regardless, 11 states have banned the practice of using credit history as a factor in calculating premiums. Some carriers have gone on record to say that they don’t use credit history in their underwriting. Ask your carrier whether they use your credit history as part of their underwriting process.

#12 Discount Eligibility

There are dozens if not hundreds of car insurance discounts that drivers can take advantage of to lower their rates. One of the most obvious is maintaining a safe driving record. Some companies will not only maintain your rates if you are a flawless driver, they will actually reward you with a discount.

Other auto insurance providers may encourage diligent studying with their good student discounts. Students under the age of 22 who get good grades can be eligible for a discount. The requirements vary between carriers — some only recognize straight A’s whereas others will look at your GPA instead.

A rate reduction that can mutually benefit both customers and insurers is a driver’s instruction course discount. Young drivers under 21 can take driver’s education, and adults over 50 can take defensive driving courses. This can get you a discount of 5 to 15 percent and sometimes higher.

Additional discounts commonly offered include:

  • Club membership — Such as belonging to Rotary Club or a certain sorority
  • First responder discount — Includes police, EMTs, firefighters and occasionally doctors or nurses
  • Accident forgiveness — Not technically a discount, but it will spare you from a rate hike following your first collision
  • Vehicle safety discount — Vehicles with certain leading-edge safety features are rewarded with a slightly cheaper rate
  • Customer Loyalty

#13 Policy Type

As you’d expect, policies with larger amounts of coverage cost policyholders more money.

#14 Car Insurance Provider

Even when looking at all these factors, you will still see different premiums from different companies. These differences happen because no two insurers will calculate your risk profile the same way. Some may lean heavily on criteria like occupation, whereas others will disregard your job almost completely. Running costs vary from day-to-day, too, so expect fluctuations if you get a premium quote from the same company a few months apart.

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