Car Insurance Premium Rate Factors

You’re legally required to have at least some auto insurance. Find out what factors influence the cost of your coverage, and how to reduce your rates.

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Driving is inherently dangerous. According to the National Safety Council, 40,200 people died in vehicle collisions in 2016 alone. Those high numbers show us why car insurance is a good idea. They're also why states require drivers to have insurance before hitting the road.

It can be hard to anticipate insurance rates when you're trying to figure out your total driving costs. Car payments stay fixed, title and gas prices go up steadily, but auto insurance premiums seem to randomly fluctuate.

Luckily, it doesn't take a math wizard to have some idea of what your costs will be. You just need to know how insurance rates are calculated. Premium calculations can seem like a dice roll, but in reality, they're fairly consistent.

While you might not be able to guess the dollar amount, you can still anticipate your costs. You can even reduce these costs by paying attention to what insurers focus on. These are the factors insurers use to determine your costs:

How Car Insurance Companies Determine Your Rates

Age

Age is the biggest indicator of your risk as a driver. The Insurance Institute for Highway Safety states that drivers between 16 and 19 will have a crash rate nearly three times higher 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 or 19-year-olds to have a fatal crash, even considering the number of miles driven.

Because of these alarming numbers, insurers see young drivers as being the most high-risk policyholders. Teens can reduce these costs through steps like getting good grades and taking driver’s education courses. But they should still expect to shell out more than their older siblings for a few years. In fact, our study shows that a 16 year old driver pays, on average, $438 per month for car insurance.

Gender

Statistically, women have fewer accidents, less traffic citations, and far fewer fatal crashes than men do. This is especially true 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 pay noticeably lower premiums than men as a result. This gap decreases as both genders age.

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Vehicle Value and Repair Costs

It's no surprise that insurers will charge higher premiums to cover expensive cars. A Ferrari will naturally need more coverage and have higher rates than an 800-dollar Yugo.

The cost of repairs for your car will also factor into your insurance rates. For example, Honda Civics are easier to work on and have cheaper, more accessible parts than a BMW.

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

Vehicle Safety Ratings

The safety of your car is very important to your insurer. They will be covering your medical costs if you're 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, especially 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.

Some vehicles have design flaws and are prone to malfunction on the road. Find out if your car is one of these to prevent surprises when you get your liability rate offer.

The IIHS conducts vehicle safety tests every year. You can check out 2018’s safest vehicles here. If you drive one of these cars, you probably qualify for a slight rate discount.

Likelihood of Car Theft

An expense that many people don't 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. You'll pay more if you have one of the most stolen cars in America or live in a city with a high car theft rate. These are the most stolen cars in 2017, according to the most recent Hot Wheels Report:

  1. 1998 Honda Civic
  2. 1997 Honda Accord
  3. 2006 Ford Pickup
  4. 2004 Chevrolet Pickup
  5. 2017 Toyota Camry
  6. 2016 Nissan Altima
  7. 2016 Toyota Corolla
  8. 2001 Dodge Pickup
  9. 2017 GMC Pickup
  10. 2008 Chevrolet Impala

Driving Record

If you have a lot of speeding tickets or a history of collisions, you'll probably be categorized as 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. A series of speeding tickets could cause your rates to bump up noticeably, too.

As an example, our research found that drivers with a single DUI charge pay $830 more per year for car insurance. That charge will hurt your rates for at least three years, meaning you’ll pay about $2,500 extra for car insurance. 

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

Occupation

What you do for work also plays a role in your insurance costs. Some occupations are considered higher-risk for car insurance than others. People who drive for a living like travelling businessmen are obvious targets for higher insurance charges. But doctors and lawyers also have higher accident rates. These high-paying jobs mean more risk-taking. Whereas scientists, teachers, and artists are lower-risk for car insurance.

Marital Status

Married couples tend to get in fewer accidents than single people. So, if you're looking for a reason to get hitched, lower car insurance rates could be it.

Location

Where you live in weighs heavily on insurance rates. Certain areas have higher traffic congestion, increasing the odds of a collision. Other areas are more prone to vehicular crime like theft or vandalism. Others have more people driving on the road without liability insurance, increasing the costs for insurers across the board. Whereas some areas simply have a higher number of lousy drivers.

Driving Habits

Beyond your driving record and your location, your driving habits also play a role in your coverage costs. People who rarely drive but still need liability insurance can be eligible for a low-use policy. These cost far less than a typical plan. Just be honest about your driving habits, or your policy could be dropped.

Credit History

Yes, your credit history can affect your auto insurance rates. Insurers think that people with worse credit have higher accident rates. But CA, MA, and HI have banned the practice of using credit history to determine premiums. Some carriers have said that they don’t use credit history as a factor. Ask your carrier if they'll use your credit history as part of their underwriting process.

Discount Eligibility

There are dozens of discounts that drivers can take advantage of to lower their rates. One way is to maintain a safe driving record. Some companies will not only keep your rates low if you are a flawless driver, they'll also reward you with a discount.

Some providers may encourage being studious 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.

Another rate reduction 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 five to 15 percent.

Additional discounts include:

  • Club membership: Belonging to Rotary Club or a sorority, for example, can earn you a discount
  • First responder discount: Includes police, EMTs, firefighters, and sometimes doctors or nurses
  • Vehicle safety discount: Cars with certain safety features are rewarded with a cheaper rate
  • Customer loyalty: If you stay with the same insurance company for a certain amount of time, they may reward you

Policy Type

As you'd expect, policies with more coverage cost policyholders more money.

Car Insurance Provider

Even after considering all these factors, you'll still see different premiums from different companies. That's because no two insurers will calculate your risk profile the same way. Some may lean heavily on factors like occupation, whereas others will disregard your job almost completely. Costs vary from day-to-day, so expect changes if you get a quote from the same company a few months apart.

References:

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