Auto insurance providers look at multiple factors when calculating your car insurance quote. Your ZIP code and state you live in can play a large part in what you pay for a premium. The minimum auto insurance limits your state requires can also increase your rates.

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Location factors that affect car insurance rates

The state, city and ZIP code you live in can increase or decrease your insurance rate. The factors that affect your car insurance premium include:

Frequency of claims in your area

If people in your ZIP code file a lot of auto insurance claims, insurers may designate your neighborhood as high risk. To offset their own potential costs, car insurance companies will quote higher premiums in that ZIP code.

Population density

In the simplest terms, a high-population area means a higher chance for car accidents. The chances of being in a fender bender are much higher in an urban area than they are in a rural one with less-populated roads. Car insurance providers take this into account when calculating your premium.

Climate and weather

Harsh weather like heavy rain, hail or snow can lead to a higher chance of an accident. If you live in an area prone to flooding, the high potential payout that a car insurance company would have to make with multiple policyholders can increase your premium in order to offset costs.

Crime rate

If you live in a city or neighborhood with frequent incidents of vandalism or theft, chances are your car insurance company will take that into account when they calculate your rate.

Unemployment levels

This may seem like an odd factor to consider, but in areas with high unemployment, it is not uncommon for people to forgo car insurance due to budget restraints. Other policyholders in the same area wind up paying higher rates to compensate.

Road conditions

Roadways in ill repair or that have dangerous intersections up the odds of an accident happening, which result in higher car insurance costs.

Auto insurers do not weigh how much each of these factors affects your car insurance premium equally. This is why you may see different quotes from different providers for the same coverage. To make sure you're getting the best car insurance at the best cost, compare quotes from multiple providers.

Why do auto insurers care about your location?

Car insurance companies are concerned about where you live simply because it factors into how likely you are to file a claim on your policy. As such, higher numbers of claims tie directly into higher car insurance premiums.

This means that if you live in a state, city or ZIP code that experiences a lot of auto accidents, auto insurers will have to pay out more for repairs or medical bills. It makes sense that your provider would want to charge more for a car insurance policy in those areas.

The opposite is also true, however. If you live in an area that doesn't see a lot of traffic or accidents, your annual car insurance premium should be lower.

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Why rates differ so much from location to location

The most expensive states for car insurance often have extensive claim requirements in regards to payouts. Take Michigan, for example. Michigan law promises unlimited protection for personal injuries. Furthermore, its state law requires auto insurance companies to pay the victim of an accident up to three years of lost wages. As such, Michigan's car insurance rates are some of the highest in the country.

Car insurance costs can go the other way in some states as well. Wisconsin is an example of a state with cheaper car insurance. It has few cars on the road, which goes a long way towards keeping it one of the cheapest states in the country for auto insurance.

A state's minimum-coverage car insurance requirements also play a part in the premium cost difference. Following are Michigan's minimum car insurance requirements:

  • Bodily injury liability per person: $50,000
  • Bodily injury liability per accident: $100,000
  • Property damage liability: $10,000
  • Personal injury protection (PIP): $250,000
  • Personal property insurance (PPI): $1,000,000

Now compare those with Wisconsin's minimum coverage requirements:

  • Bodily injury liability per person: $25,000
  • Bodily injury liability per accident: $50,000
  • Property damage liability: $10,000
  • Uninsured motorist coverage: $25,000 per person/$50,000 per accident

The higher a state's liability car insurance requirements, the higher the premiums will be. Comparing the two sets of required limits above, it's fairly obvious why Michigan is one of the most expensive states for car insurance and Wisconsin is one of the cheapest. Michigan is also a no-fault auto insurance state, which is also going to increase costs as well.

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