Are you curious about how insurers determine insurance prices for cars? It’s difficult to provide one answer to this question since every car insurance company has its own proprietary underwriting method. Shopping around for quotes with different auto insurance providers can result in dramatically different prices. In addition to the vehicle you drive, the insurer will look at your driving history, geographic location, and many other factors.
Factors in Auto Insurance Rates
Some of the parameters insurers use in their calculations include:
- Your credit score
- The number of years you’ve been driving
- Whether you have a history of accidents or claims
- Your age
- The make and model vehicle you drive
- The coverage amount and type you purchase
While insurance companies use many of the same pricing factors, Nerd Wallet notes that different firms place different weights on the importance of each factor.
State Insurance Coverage Requirements
Most states require drivers to have liability coverage, which pays for medical expenses and property damage if you cause a crash. The higher the liability limits in your state, the higher your auto insurance premiums. Most insurance companies express your coverage as 100/250/100, which means $100,000 in bodily injury liability per person and $250,000 per accident along with $100,000 in property damage coverage per accident. Nerd Wallet recommends increasing your liability coverage from the state minimum to at least your net worth, which will increase your premium cost while offering a higher level of protection for your personal assets.
According to Value Penguin, insurance rates tend to be the highest for drivers ages 25 and younger. Statistically, this age group has more accidents and claims than other age groups do.
Conversely, drivers in their 40s tend to have the best insurance rates because they have the lowest statistical accident rate by age group. However, prices remain relatively steady from the time you turn 30 until you reach age 60 as long as you remain free of claims and accidents. The Zebra reports that Nationwide and GEICO have the best rates for married older adults.
Vehicle Make and Model
The type of vehicle you drive impacts how much you pay for auto coverage. While manufacturer suggested retail price, or MSRP, correlates with insurance premium price, you won’t always pay more to insure a high-MSRP vehicle such as a truck or SUV. In fact, Value Penguin reports that Ford F-150 drivers have the cheapest average auto insurance rates. Besides vehicle value, premiums vary based on crash test rating, theft rates, and safety features.
Nerd Wallet reports that these vehicles cost more to insure on average:
- Electric cars because of the cost of repairing the expensive batteries and engines in these vehicles
- Cars with high theft rates, particularly if you have comprehensive insurance that covers theft
- Luxury cars because of the high cost of repair associated with high-end vehicles
- Sports cars because of their higher speeds and resulting higher accident and ticket risk
Insurers look at your past driving behavior to predict your likelihood of future accidents and claims. They charge more for coverage if you have a high risk of violations, tickets, and other incidents based on the higher risk of providing you a car insurance policy.
The Zebra reports that after a ticket for driving under the influence, your insurance rates can go up by up to 75 percent. What’s more, these higher premium prices can last for at least three and up to 10 years.
A speeding ticket raises car insurance premiums by 25 percent on average. Shopping around for pricing from different insurance companies can help you find the most affordable coverage rates. For example, drivers with a speeding ticket pay an average of just 5 percent more for coverage than drivers with a clean record with American Family Insurance, while Liberty Mutual increases prices by about 35 percent after a speeding ticket. This type of increase can remain on your record for about one to three years.
An at-fault accident resulting in property damage increases insurance costs by more than $650 per year for three years. For this reason, you may want to pay for the damage to your car out of pocket if it costs less than the average increase in premium costs (about $2,000 over three years).
Your three-digit credit score influences your auto insurance premiums unless you live in Massachusetts, Hawaii, or California, where this practice is prohibited. The lower your credit rating, the more you will likely pay for car coverage.
Because every state has different minimum auto insurance requirements, you will pay significantly different premiums depending on where you live. Nerd Wallet reports that you’ll pay at least 200 percent more for coverage if you live in one of the most expensive states compared to the average policy rates in the most affordable states. In addition to your state, your zip code also influences your auto insurance rates.
Gender and Marital Status
While gender has only a minor influence on auto insurance premiums, some insurers do charge slightly different rates for men and women based on their statistical levels of risk. For teens and young adults, men tend to pay more for insurance than women do, but this trend reverses for older age groups. However, state law bans this practice in Pennsylvania, North Carolina, Montana, Michigan, Massachusetts, Hawaii, and California.
Your marital status can also affect your insurance cost. People who are married typically pay less for coverage than people who are single, divorced, or widowed.
In addition to these main categories, insurance prices for cars change depending on occupation, mileage driven, and many other details of your history. Because of the wide variety of factors influencing your auto insurance rates, most experts say that shopping around is the best way to find the lowest coverage costs for your needs. In fact, you should get quotes for coverage about once a year or anytime your circumstances change.
Check this out if you need additional information, resources, or guidance on car insurance.
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