Everyone wants a good deal on auto insurance, but it’s hard to be sure you’re paying a fair rate unless you know how insurance companies price their policies. Some factors that determine your insurance costs are out of your control — including your age and the legal requirements in your state — but others are not, such as how safe you behave on the road and the type of car you drive.
A smart way to pay less is to understand the factors that affect car insurance rates in order to present yourself in the best possible light to insurers. Here’s a look at factors that insurance companies will — and will not — consider when setting rates.
How Is Car Insurance Calculated?
Auto insurance companies set rates based primarily on information about you, your car, and your location. For example, a clean driving record and good credit work to your advantage. But if you live in an area with more crime or drive an expensive car, expect higher premiums.
“There are several rating factors that are taken into account when calculating your insurance premium,” says Lauren McKenzie, an insurance broker at A Plus Insurance in Sierra Vista, Arizona. “Most commonly, these include major violations, number of drivers, education, marital status, claims history, age, type of vehicle, and ZIP code.”
The Type of Coverage You Choose
There are three main types of auto insurance:
- Liability insurance: Most states require a minimum amount of liability insurance, which covers you if you are at fault in an accident that causes property damage or injury.
- Collision insurance: If your car is damaged in an accident with another car or object, like a lamppost or tree, collision insurance helps pay to fix or replace your vehicle.
- Comprehensive insurance: This covers situations where your car is stolen or damaged in an incident that isn’t a collision — say, in cases of vandalism, harsh weather, fire, or falling objects such as tree branches.
States don’t require collision insurance or comprehensive insurance. Adding them to your policy will raise your premiums, so consider the value of your vehicle when deciding if the extra cost is worth it. If you have a car loan or lease, keep in mind that you may be required to carry collision insurance and comprehensive insurance to protect the value of the vehicle.
Limits and deductibles
All policies have a coverage limit — the maximum that your insurer will pay for covered damages. For example, if your policy’s liability limit is $10,000 for property damage and you’re at fault in an accident that totals another car, your insurance will pay up to $10,000 toward the cost of replacing that car.
“You want to select liability limits that will properly cover you based on your assets,” McKenzie says. “If you are a homeowner and opt for the state minimum liability requirements, you could risk being sued in the event of an accident if your limits do not meet your assets.”
Policies also have deductibles. That’s the amount of money you have to pay out of pocket in a claim before your insurance kicks in. For example, if the repairs total $1,000 and your deductible is $500, then you’ll pay $500, and your insurance company will pay the remaining $500.
Because you would be responsible for more costs in a claim, choosing a higher deductible can help you save on your premiums. The cost of your collision and comprehensive insurance could drop by 15% to 30% if you raise your deductible from $200 to $500, according to the Insurance Information Institute. Just make sure that you’re financially prepared to pay that higher deductible if you have to file a claim.
What Car Make and Model You Drive
The cost of insurance can vary significantly depending on your car’s make and model. A newer, pricier car will likely cost more to cover because it would be more expensive to repair or replace. Cars with more powerful engines can also be costlier to insure due to the increased risk of speeding and getting into an accident.
Additionally, insurance companies consider the likelihood of someone stealing your car. So, if your car has anti-theft technology, that can lower your rate. The same is true for cars with high safety ratings. Because these vehicles better protect the driver and passengers in an accident, insurance companies see them as less risky to cover.
Where You Live
Your auto insurance premium isn’t just based on information about your car and driving history. Insurers also charge more based on where you live.
ZIP code
Just like how your insurance company evaluates the likelihood of your car make and model being stolen or vandalized, it’s going to pay attention to the crime rates in your ZIP code. Your insurer will also look at the accident rate in your ZIP code, as areas with frequent crashes put your car at a higher risk. In general, you’ll pay more if you live in a city compared to a smaller town or rural area.
“ZIP code impacts your car insurance premium based on the number of accidents and claims in the area,” McKenzie says. “Insurance companies do rate revisions, gathering this data in the specific area and surrounding area. If an area has had an increased number of claims, insurance rates go up for everyone.”
State requirements
Because the amount of coverage you are required to maintain by law depends on where you live, your home state affects how much you have to pay for auto insurance. For example, in Florida, you only need $10,000 in liability coverage for property damage and $10,000 per person (up to $20,000 per accident) for bodily injury. In Indiana, however, you need $25,000 in liability coverage for property damage and $25,000 per person (up to $50,000 per accident) for bodily injury.
Where you park your car
When you park overnight on the street, your car is more vulnerable to theft or vandalism than if it’s parked in a garage. Street parking also leaves your car exposed to being sideswiped or hit by passing traffic. As a result, having regular access to secure parking can help lower your insurance rate.
Your Driving Record and Coverage History
Your driving record tells your insurer if you’ve been in an accident or cited for a traffic violation, which helps the company determine how much of a risk you are to insure. Your coverage history indicates whether you’ve been continuously covered by auto insurance in the past, which can earn you a discount with some insurers when you switch companies.
Past claims
If you need to file a claim for an accident where you were at fault, expect your insurance company to raise your premium. Insurers also check whether you’ve made claims in the past to help them evaluate how much risk you pose as a driver.
The exact amount that your car insurance will increase by depends on the insurer, as each one weighs claims differently. For example, with Progressive, you can expect your rate to increase by an average of 28% after an at-fault accident. However, if a comprehensive claim costs less than $500, then Progressive won’t increase your rate unless you make similar claims multiple times.
Regardless of your insurer, your premium will generally be affected for three years following a claim.
How much you drive
If you have a long commute or frequently take road trips, you may pay more than if you work from home or only use your car locally. Insurance companies charge higher rates if you drive a lot, because it means you’re on the road more often and therefore at greater risk of getting into an accident.
Your Demographic Information
Your insurance company will look at some personal information that might surprise you. While your age, gender, and marital status may seem irrelevant to auto insurance, these factors do influence your rate.
Age, gender, and marital status
Younger drivers get into more accidents, so insurers tend to charge more for drivers under the age of 25, according to the Insurance Information Institute. In addition, drivers age 55 and older often qualify for discounts, some of which require the completion of an accident prevention course.
Your gender also can influence the price of your auto insurance policy, as women statistically have fewer accidents and DUIs. Men generally drive more miles than women and are more likely to engage in risky driving behaviors, according to the Insurance Institute for Highway Safety and the Highway Loss Data Institute. As a result, men typically pay more for car insurance.
If you’re married, you can benefit from multicar insurance discounts. With State Farm, a multiple vehicle discount could save you up to 20% on your premium, and with Geico, it could save you up to 25%. Being married can also help you score a lower insurance rate because you’re more likely to have better credit, according to Experian.
Your Profession
Holding certain jobs can help you pay less for auto insurance. Farmers, Geico, and Liberty Mutual offer a military discount to veterans as well as those who are actively serving in the U.S. military or National Guard. Geico also offers a discount of up to 12% to federal employees. In addition, organizations can partner with auto insurance companies to offer their employees a discount through an affinity program.
Your Credit History
Insurance companies will look at your credit report to see if you have any outstanding debt and note how you’re repaying that debt. They also check the length of your credit history and how many lines of credit you have open, among other factors.
Keep in mind that there’s a difference between your credit score, which is used to predict credit delinquency, and your credit-based insurance score, which is used to predict insurance losses. If you have a lower insurance score, then you’re generally viewed as more likely to file a claim. However, each insurer evaluates credit differently. State laws on this practice vary, with California, Hawaii, and Massachusetts barring insurance companies from using credit history to determine rates.
What Factors Don’t Affect Your Car Insurance Rate?
There are a number of myths about auto insurance rates. To separate fact from fiction, here are some factors that have no effect on what you pay for car insurance.
The color of your car
Some say that red cars are more likely to catch the attention of police and result in traffic tickets, while white cars skate by unnoticed. But when it comes to the cost of your auto insurance, the color of your car makes no difference.
Your race and religion
When you get an auto insurance quote, you’ll notice that you won’t be asked about your race or religion. That’s because it is illegal for insurance companies to use this information to set your premium. If your insurer is collecting this information to determine rates, you can contact your state’s department of insurance to file a complaint and report the company.
Your income
Car insurance companies won’t ask how much money you make each year or use your income to determine your rate. However, if you cannot afford your premium payments, your state may offer a low-cost auto insurance program. If you live in California or New Jersey, for instance, reach out to your state insurance department to find out if you’re eligible.
Tips To Lower Your Car Insurance Rate
Remember, you don’t have to stay trapped with an expensive premium. Here are steps you can take to help reduce the amount you pay each month for car insurance.
Understand your policy — and do your research
If you’re not an insurance expert, some of the terminology used in your policy might confuse you. Make sure you’re clear on the difference between liability, collision, and comprehensive coverage, so you know exactly what you’re paying for. It’s also worth looking up the minimum amount of insurance required by your state and figuring out how changing your liability limits can affect your rate.
You’ll also want to get a handle on the current value of your car to decide if it’s worth protecting with collision or comprehensive coverage. If your car is totaled, your insurance company will pay for the vehicle’s actual cash value, which may be far less than what you paid for it.
Get multiple auto insurance quotes
Common car insurance mistakes include taking the first quote you’re offered or automatically staying with your current insurer. Don’t be afraid to shop around; otherwise, you might end up paying much more than you need to. Some insurance companies may offer a better deal for your specific situation. For example, Metromile lets you pay per mile if you don’t drive that often, while Geico will give you up to 22% off if you’re accident-free for the past five years.
Ask for discounts and other deals
Insurance companies offer a wide variety of discounts that you can cash in on — whether it’s for safe driving, certain vehicle features, or even good grades. But you can’t expect your auto insurance company to know about your stellar academic record if you don’t ask about the discount in the first place. Familiarize yourself with what your insurer offers so that you don’t miss out on some hidden auto insurance discounts.
Opt for a higher deductible
Having a higher deductible means that you’ll be on the line for more money if you file a claim. However, choosing a higher deductible can also lower your premium because your insurer won’t have to pay as much in the event of a claim. For example, you could save 15% to 30% on your collision and comprehensive insurance by increasing your deductible from $200 to $500 or save 40% or more by jumping to a $1,000 deductible, according to the Insurance Information Institute.
Remember that if you increase your deductible to $1,000 and then file a $900 claim, your insurance won’t cover it, and you’ll have to pay the full amount out of pocket. But if you stay accident-free, then you’ll save money over time with the lower premium.
Use extra caution when driving
Your insurer will likely raise your premium if you get into an accident and are found to be at fault. So, if you commit to driving safely, you can keep your premiums low. Some insurers even reward you for safe driving and avoiding accidents and tickets. For example, Liberty Mutual’s RightTrack is a safe-driving program that can save you up to 30% on your auto policy. With Progressive, if you have no accidents or tickets in the past three years, you could pay an average of 31% less than drivers whose records aren’t as clean.
The Bottom Line on Factors That Affect Car Insurance Rates
What affects car insurance rates? The simple answer is: pretty much anything that makes insurance companies view you as more likely to file a claim. If you own an expensive car, have a spotty driving record, or live in a neighborhood with high rates of accidents and crime, that spells trouble to insurers. One of the quickest ways to reduce what you pay for auto insurance is to shop around and take advantage of any discounts that you’re eligible for. Auto insurance is a fact of life if you drive a car — but you’re not married to your insurance company, and your rate can always improve over time if you have good driving habits.
