Congratulations! You just bought a new car and are now almost ready to take it to the streets. But you forgot one thing.
You feel like your rate at your last insurance company was higher than all of your friends, so you decide to shop around for a lower premium.
While conducting your search, you notice that every insurance company is different. Who is the best company to choose as your insurer? Which insurance company has the lowest rates? Geico? Statefarm? Allstate?
The answer to this question will vary as each company has a unique algorithm used to determine the best rate for you.
So how then is your car insurance rate determined?
This article and the accompanying infographic are intended to help provide an answer to this question.
As a summary, the below points have been identified as primary factors that may increase or decrease your auto insurance rate:
- What Type Of Car Did You Buy And What Are Its Features?
- How Do You Plan To Use Your Vehicle?
- Where Do You Live?
- How Old Are You?
- What Is Your Gender?
- Are You Single Or Married?
- How Many Years Have You Been Driving?
- How Good Is Your Driving Record?
- What Is Your Claims History?
- How Is Your Credit History?
- What Was Your Previous Insurance Coverage?
- What Is Your Annual Driving Activity?
- What Type Of Coverage And Deductibles Do You Want?
- Where Do You Work?
To help you answer the majority of the questions above, we encourage you to think like an insurance carrier.
What Type Of Car Did You Buy And What Are Its Features?
The type of car that you buy plays a large part in the cost of coverage. For example, it may seem that purchasing a 2012 Honda Civic instead of a 2018 Mercedes Benz may cost significantly less to insure. Interestingly, this may not be the case.
Consider the below factors when determining how the type of car may affect the price of insurance.
Statistically speaking, you are more likely to speed in a sports car than in a family car. In fact, the size of the engine that your car has may play a role in determining your rates. If you purchase a car that has 600 horses, who are you to not use all those horses. Just expect to pay a higher auto insurance rate.
A luxury vehicle such as an Escalade or a rare classic car may cost more to insure than a Honda Civic given many of the factors below.
Are you looking to purchase a new car or a used car? Though it may seem a new car would automatically cost more to insure, this may not necessarily be the case. As technology has advanced and vehicles have gotten safer, a new automobile may cost less to insure.
How safe is your new car? There is a very high correlation between the cost of insurance and the safety rating of your vehicle. Check a website such as IIHS.org when conducting research on which car to purchase.
Contrary to popular belief, the color of your car does not affect your insurance rates. Though the red convertible may not increase your rate based on color alone, it may increase based on areas such as safety rating and what is under the hood.
How big of a car do you want? Driving a Suburban means that your vehicle is not easily maneuverable, but if you do happen to get into an accident, you will be much safer than in a small car. If you get a sports car, you will have added maneuverability, but may be at higher risk of injury if you get into an accident.
Likelihood of Service
If you end up getting a car that is notorious for breaking down, your insurance rate is likely to go up as well. Though those German engineered vehicles are no eyesore, they are notorious for bringing a hefty repair bill for even minor service. This is because parts may be difficult to obtain and specific expertise may be required to repair them.
The average maintenance cost for your car should be a consideration when purchasing a new vehicle.
Did you know that about 40 percent of your insurance costs cover theft or damage to the car? Based on this statistic, you should find a car with a well-functioning alarm system. If you can’t get a good alarm system, invest in one of those steering wheel lock bars for safekeeping… Kidding. 🙂
A vehicle equipped with a LoJack or Onstar will also decrease the cost to insure the vehicle as these allow you (and the insurance company) to track your vehicle. Older vehicles, such as classic cars, are not equipped with alarm systems and as a result, may attract a higher premium.
If you have one of the top 10 most commonly stolen vehicles such as a Honda Civic or a Ford Pickup, an alarm system is highly recommended to help mitigate the risk of theft.
How Do You Plan To Use Your Vehicle?
When applying for a new auto insurance quote, the insurer will also want to know your intended use of the vehicle. Is this a daily driver, a weekend driver, or a business vehicle? The way you answer this question may increase or decrease your rate.
If your new car is a daily driver for personal use, it makes sense that your rate would increase. More time on the road usually means a higher chance of getting in an accident.
If you get a business use vehicle, you may require additional insurance over and above that of a personal use vehicle. Be sure to check your business use policy with the different insurance carriers.
If you are into the ridesharing services such as Uber or Lyft, make sure that your policy factors in the added risk of those services. You may have to obtain a separate policy to address this additional risk to the insurer. If you are a rideshare driver, please make sure you drive safely to keep your rates low and keep your passengers safe.
Where Do You Live?
Unfortunately, the city, state, and neighborhood you live in all factor into your insurance rates. In 2017, auto insurance rates were the most expensive in Michigan and the least expensive in Maine. The rates may be affected by the state law insurance requirements, the quality of the infrastructure, or may just vary based on the zip code of your neighborhood.
The neighborhood you live in also plays a factor in the theft rate. If you live in an area where there is a high likelihood of theft, expect to pay a slightly higher premium for your insurance.
You know the saying location, location, location? Not only does that apply to home buying, but also to your vehicle insurance rates.
How Old Are You?
Remember when you were learning how to drive? You were probably terrified to change lanes, had both hands gripped tightly on the wheel, and never listened to music. Even with this intense focus on the road, you are still a very high risk while operating a motor vehicle. Here are some interesting facts for you from dmv.org:
- Teenagers drive fewer miles than most adults but have much higher crash and death rates.
- The rate of accident-related deaths per mile among 16 to 19 years old is 3 times higher than for drivers over 20 years old.
Pretty scary to think about the high risk our teens are exposed to when operating a motor vehicle. Teens are also:
- more likely to speed.
- less likely to notice when they are in a dangerous situation.
- more likely to tailgate.
- less likely to wear their seatbelt.
Given the statistics above and the general inexperience when starting to drive, the insurance rate for drivers under age 25 is usually significantly higher than those above 25.
To combat the high insurance rates, encourage your children to wear their seatbelts and get good grades! Most insurance carriers offer a discount when your children receive good grades in school.
For those of you between 25 and 65, make sure to keep your driving record as clean as possible to take advantage of the lowest rates offered.
On the flip side, once drivers reach 65 years of age, they tend to experience vision, hearing, and cognitive problems. As a result, the insurance rates increase again after age 65. Consider changing the primary driver on your policy if you don’t drive as much, or take advantage of senior car insurance discounts to keep your rates low.
Statistically, men pay a higher premium for insurance than women. Men are more likely to:
- purchase the expensive muscle car and try to use all of the muscle
- get in more accidents than women due to riskier driving behavior (and maybe ego)
- Drive more miles than women
Based on the factors above, women cost less to insure as they engage in less risky driving habits and buy less expensive vehicles.
Are You Single Or Married?
Many insurance companies use your marital status as a determining factor in your insurance rates. If you are single, add in a prerequisite for your significant other to have a clean driving record (we are just kidding). When you do get married, however, your driving record and that of your spouse both become a factor in determining your rate. If your spouse doesn’t have a great driving record, expect to pay slightly more in premiums.
It is proven that someone who is married is less likely to be involved in an accident than someone who is not married. Therefore, think about your loved ones before making a risky driving decision.
How Many Years Have You Been Driving?
In general, the more experience you have as a driver, the lower your rate will be. This is the case unless you have a poor driving record. Refer to the Age section above for more of an understand of how age affects your rates and the Driving Record section below for more information about the importance of maintaining a clean driving record.
How Good Is Your Driving Record?
This is one of the more important factors that determine the amount you pay for your car insurance.
Past actions are indicative of future performance.
For example, if you have a history of 4 speeding tickets and a DUI, an auto insurance company would consider you a high-risk driver. You would likely pay more for insurance than someone with a clean record.
It is very important to keep a close eye on your driving record. If you get a speeding ticket, attend driving school to avoid driving record points.
Think of your driving record like your credit report. You want to keep it as clean as possible to ensure you pay affordable rates throughout your time as an automobile operator.
What Is Your Claims History?
Do you have a history of being in car accidents? If so, you may expect to pay more for coverage than someone with no accidents. Thankfully, auto insurance companies will consider many factors when you are in a car accident including:
- Who was the at-fault driver?
- How severe was the accident?
- How many accidents have you been in?
Some providers also offer accident forgiveness, meaning that your first accident will not result in an increase in rate.
How Is Your Credit History?
Interestingly, your credit score is also a major factor considered when determining your auto insurance rate. Think like an insurance carrier. How trustworthy are you?
Do you pay your bills on time? The insurance company will likely offer you a lower rate because they trust you will pay appropriately.
On the flipside, if you have demonstrated that you pay your bills late or not at all, they may offer a higher rate to you.
It is important to note that not all states allow insurance companies to use credit score as a factor in determining rates. Click here to read more about how a poor credit score can affect your premium.
What Was Your Previous Insurance Coverage?
If you are shopping for insurance through a different carrier, they will be interested in your coverage with the prior company. This will allow them to understand your coverage needs as well as a benchmark for your premium.
If you went through a period where you had no insurance (referred to as a lapse in coverage), this might significantly increase the cost of insuring your vehicle. The insurance companies may automatically consider you a high-risk driver if you do let your coverage lapse and you may even be denied coverage.
Do anything in your power to prevent a lapse in coverage. A lapse may result in short-term savings, but being caught without insurance will immediately offset the savings.
What Is Your Annual Driving Activity?
How far do you expect to drive annually? How frequently are you expecting to be on the road? Are you a highway commuter or a city commuter?
If you plan multiple trips across the country, you are at a higher risk of getting into an accident. Think like an insurance carrier. Higher risk equals higher rate.
An additional consideration is the current mileage of your vehicle. If your car has a significant number of miles when you purchase it, it may be indicative that repairs are soon to come and your rate may be increased.
What Type Of Coverage And Deductibles Do You Want?
The level of coverage that you desire will also play a significant role in your rate. If you want many types of auto insurance coverage (property damage, bodily injury, etc.), it is expected that you will pay more than just the basic required coverage.
Do your research about your states required coverage limits and assess your risk tolerance to determine the level of coverage you need.
In addition to the coverage desired, the below factors play into your coverage requirements and deductible.
How many people are you insuring? If you are insuring yourself, your husband and twin 16-year olds, you should expect to pay more than if your children were not on your policy.
How is your driving record? If you and your husband have poor driving history, expect increased insurance costs as well.
How many vehicles are you insuring? If you have five cars, expect to pay more for insurance than obtaining coverage for only two cars.
How long have you been insured by the company? Insurance companies will often offer a discount for being a loyal customer. If you have multiple policies (such as home insurance as well), you may be eligible for a multi-policy discount.
Are you financing your car or paying cash? The amount you put down and monthly car payment affect your premium. It is recommended to pay cash for a vehicle, if possible.
Where Do You Work?
Your occupation plays an important role in determining your rate as well. Some jobs require late nights at the office or long commutes and therefore are weighted differently by insurance carriers.
Drivers having these jobs may have higher rates:
- Business owners
Some lower risk occupations that may experience lower rates include:
If you are in one of these categories, it is not guaranteed that you will pay higher rates, but this may factor into the cost of your premiums.
Remember how each insurance agency has their unique algorithm? Though each carrier may place a different weight on the factors in this article, each factor mentioned may impact your auto insurance rates. To help you throughout the car buying process, here are our recommendations.
Think like an insurance carrier. This will help you answer the majority of your questions.
Keep a close eye on your driving record and guard it like your credit score. Doing so sets you up to take advantage of low auto insurance rates throughout your lifetime.
Research your dream car before purchasing. This allows you the freedom to make adjustments before a sticky situation occurs.
Have a plan. The more you plan for large changes in financial situation, the better prepared you are for a change in circumstances.
Drive safe. Not only does this lower your rate, but it will also help keep those around you safe.