Factors That Affect Car Insurance Rates

If you’re looking to purchase car insurance or renew your current car insurance, you may already know that insurance rates are usually different. The key question is why insurance rates differ.

Insurance rates differ because of rating factors.

What Are Insurance Rating Factors?

Rating factors are individual characteristics specific to a customer which insurance companies use to determine their car insurance premiums.

The rating factors determine the risk level of a customer. Insurers use the risk level of a customer to calculate the premiums.

Typically, the less risky your rating factors are deemed to be, the cheaper your car insurance policy. Some car insurance rating factors such as vehicle type or driving record have relatively significant impacts on car insurance cost. Others, such as marital status and gender, are sometimes deemed less important.

What Factors Affect Car Insurance Rates?

The four known factors that affect car insurance rates are:

  • Demographic factors (age, gender, marital status, credit score)
  • Where you drive (state, address, location, etc.)
  • Car related factors (car make and model, size, age, safety rating, etc.)
  • Personal driving habits (driving experience, driving record, yearly mileage, etc.)

Each of these factors that affect car insurance rates is weighed differently, which is why different providers usually have different premiums for an individual.

Here is a description of 9 key factors that affect car insurance rates.

1. Age And Driving Experience

Age has for a long time been a very significant rating factor. This is more important for new and/or young drivers. This is why young and new drivers under the age of 25 pay more on insurance premiums than the more experienced drivers.

Insurance providers view young or teen drivers as high risk and potentially expensive clients. Young teen drivers are inexperienced and drive more recklessly, and get involved in more accidents than old and experienced drivers, making them expensive to insure.

Also, insurers analyze young drivers in two categories: 18-20 and 21-25. Notably, individuals over the age of 21 may see some reduction in insurance premiums than those who are 20 years old or below. The age-related reductions usually continue as drivers gain more experience and move into lower-risk age groups.

2. Where You Live (drive)

Where you drive is a key determinant of the cost of your car insurance. Where you drive includes your geographical location such as state, address, neighborhood, or where you live. Some neighborhoods are highly prone to car theft or vandalism, making insurance premiums higher in these areas.

Car insurance rates are different when it comes to states. The state you live in will determine the cost of your car insurance. More densely populated neighborhoods, which have more cars, expose you to a higher risk of theft, collisions, or accidents increasing your insurance premiums.

3. Credit Score

Many car insurance companies give significant consideration to your credit score when determining your car insurance rates. Although there is no particular point at which insurers begin to use your credit score to calculate your rate, generally, lower credit scores translate to higher insurance premiums.

Typically, individuals with low credit scores are more likely to file more insurance claims, sometimes inflated claims. They even have a high likelihood of committing insurance fraud. This is why insurers categorize them as high-risk clients and hence hike their premiums.

However, not all insurers use credit score as a factor in determining the car insurance rates.

4. Gender And Marital Status

Most states allow providers to use gender in determining the rates. Typically, car crash statistics are different for females and males, with data showing males having a high likelihood or being involved in a crash. This is even more likely when the driver is male, aggressive, and novice.

In Arizona, gender is used alongside driving experience and age to calculate car insurance rates.

Married couples usually have fewer accidents, collisions, or claims than single individuals. This is why insurers deem married people as less-risk customers than their single counterparts. Therefore, getting married can significantly lower your rate, but the rate will still be determined based on your driving record when you were single.

5. Driving Record Or History

Your driving record is an important factor for your insurance company. Insurers don’t like high-risk drivers.

If you’ve received any tickets, been in accidents, moving violations (speeding, DUI, etc.), or made previous insurance claims, you’re a high-risk driver in the eyes of the insurance company. These records prove that you’re more likely to receive another ticker, get into another accident, or make another claim.

Some insurers will decline to offer you any service if your record is bad enough or if you have more claims in your name.

6. Your Car Model Or Type

The current value, model, and age of your car affects your car insurance rate. Insurers group different car models based on their price when new, performance, safety rating (safety tests), repair costs, the price of the body shell, and the price of replacement parts.

For example, safety features such as automatic seatbelts, airbags, and traction control improve your car’s safety rating and make you less likely to get in an accident. If your car falls in the group with high safety ratings, then you have lower chances of needing to pay for your passengers’ medical needs in cases of an accident. This will reduce your premium rates.

However, a vehicle that is deemed to have lower safety rates will attract high rates because of the associated risks.

More expensive cars attracted higher rates because of the costs related to their spare parts, repair, or replacement in case it totals.

7. Mileage (Annual Mileage)

The logic of Mileage is that the less you drive, the less exposed you are to an accident. Insurance rates are high if you have more annual Mileage per year than someone with lower Mileage.

If your annual miles driven drop, you need to let your insurer know because you’re likely to save money on your next renewal.

8. Insurance Record

It doesn’t matter whether your current insurer is the same as your previous car insurance provider because your previous insurance record is a key determining factor of your current rates. Insurance companies perceive those who default or lapse on their insurance as high risk and will calculate higher rates compared to those without a lapse in coverage.

In addition, having a continual car insurance history is a significant insurance score and can help get you a better rate. Continual coverage with the same company can also earn you some loyalty discount.

9. Insurance Deductible And Coverage

If you pay a higher deductible, your car insurance rate may reduce significantly. Also, if you have more coverage, you’re likely to pay more rates.

While most states require minimum car insurance, it is always important to include more other coverages to your policy. But this increase comes with an increase in the insurance rates.

Final Word

Buying car insurance is a major component of owning a car. So, you need to do anything you can to lower the rate and save on your budget. Besides taking a keen consideration of the mentioned factors that affect car insurance rates, you also need to exploit the many loyalty and additional discounts that car insurance providers offer. You may also consider bundling your insurance to help reduce the costs.