Every insurance company will have their own criteria for determining your insurance costs. There is usually a formula used to determine risk and these are constructed around approximately a dozen separate factors. There are, however, some industry standard risk factors that you can expect to be considered when looking for car insurance.
Here are the main factors that impact on the amount you will pay for your car insurance:
Your driving history
It is standard procedure for any car insurance company to look back at your driving record, usually over the last five years, when determining how much you should pay. Each State has its own driver licensing agency (DMV) and you can apply for your own Motor Vehicle Report (MVR) to find out what sort of information the company will receive. There is usually a fee, but it does not tend to be expensive. You should contact your local DMV office who will be able to give you detailed information.
If your driving record is clean you are obviously considered less of a risk compared to if you have violations on your license. The math is simple: High risk = high rates.
The amount and type of coverage you are looking for
If you are in a state that mandates car insurance, you will need to buy at least the minimum coverage. This usually includes:
- Liability insurance: If a driver is liable for damage to a victim’s car or person, this will reimburse them.
- Personal injury protection: Covers medical bills for yourself and any passengers following an accident.
- Collision insurance: This will cover damage to your vehicle following a collision. This may be optional, however it is often compulsory if you lease a car or you have purchased the vehicle with a loan.
- Comprehensive insurance: This is an optional coverage unless you have taken out a car loan to purchase the vehicle. This will cover theft or damage when your car is parked.
- Uninsured/under-insured motorist insurance: In an accident or collision there is always a risk that the other party does not have insurance or is under-insured. This means the insurance will not cover all of your resulting bills if the other party is at fault. This cover will address that shortfall. It is compulsory only if you lease your car or buy it using a loan.
- Gap insurance: Car insurance will often leave a gap if a vehicle is not repairable following an accident or is stolen. This insurance will cover the gap between the depreciation of the car and how much you may owe on the car loan or lease agreement. It may be optional, but this is dependent on the individual lien-holder.
Whatever your particular state requires you can purchase extra coverage if you choose to do so. You can choose more in one component and less in another and your insurance premium will increase or decrease accordingly.
Age is a key factor when determining an insurance risk. A younger driver is less experienced and statistically more likely to be involved in an accident or collision. They may well develop into one of the best drivers on the road but usually if you are under 25 your premium will be higher. Once you hit 25 you will start to see the cost reduce – but you need to make sure your driving record is good.
Age is something that is always a factor when buying car insurance. A driver aged 20 will pay double than one aged 30. Car insurance companies consider the best age in terms of risk to be between 45 and 55 years.
Make sure you shop around because different companies charge different rates. Once you reach age 55 the rates will even out, only to rise again once you reach 65 years.
How much you drive
It is common sense that the longer you are on the road, the higher your risk of having an accident becomes. Your premium will rise to take account of the extra risk.
Your gender & marital status
Again, it is all down to the statistics. The evidence states that it is single people and males who are more likely to be involved in accidents. This increases the risk for the insurance company so if you are male and not married, expect to pay a higher premium.
Your credit score
Most insurers will take a look at your credit score. If it’s good, then the more likely you are to get a lower rate simply because it is generally considered to be an indicator of responsibility. However, in some states insurance companies are legally prohibited for using this as a metric by which they can set your rates.
Unfortunately, if you live in a neighborhood with high levels of crime, especially vehicle related, or there are a lot of accidents reported there you will be paying more than someone living in other, ‘less risky’ areas. Insurance works by pooling risk, so you also see this for home and renter’s insurance if the neighborhood is considered risky.
If you are driving an expensive car you can expect higher charges for collision coverage and comprehensive insurance. This is based on the fact that the costs involved in repairing or replacing the car will be higher. On the other hand, some insurance companies will look at the car’s history, but be aware that having a safer car will not necessarily have a positive impact on your insurance premium.
If you file a claim it could raise your premium
It is a sad fact that having to file a claim can result in a premium hike. If you are at fault you should always file a claim but be aware that your premium could go up by as much as 50% as a result. This is one way an insurance company can make sure people take more care – they want to reduce their own risk by making sure you are not constantly having accidents.
It is worth looking at the loss and if it is not too bad you can avoid filing a claim. Take a look to see if the premium rise you are likely to experience will cost more than the loss over time. This can make the decision not to file an easy one.
How to get a discount on your car insurance
There are ways you can take advantage of discounts to lower your car insurance costs. Check with your insurance company because each one offers different types of discount options. The most commonly offered discounts are:
- Safe driver discounts: When you have a good history of safe driving, ie, no accidents, you may be able to get a discount. Some companies give a discount if you take part in a driver’s education class.
- Safety and security equipment discounts: Your company may offer a discount if you install car alarms or take other anti-theft measures.
- Fraternity, sorority, university, and alumni discounts: There are car insurance discounts offered for students which you can access if you are affiliated with a university or fraternity/sorority. In addition, getting good grades may also help to lower your premiums.
- Bundling discounts: If your insurer provides multiple insurance products it may be worth combining your car insurance with something like renters or home insurance in order to take advantage of a bundle discount.
- Paying annually: If you can afford to pay your insurance up front you may find your insurer will offer you a discount, making it cheaper than paying month by month.