What Factors Affect Insurance Premiums The Most?

Do you ever wonder how the cost of your car insurance premiums is calculated? You may have a general idea of what might or might not form part of your premium costs, but how insurance premiums are priced often remains protected to the insurer’s knowledge.

It is important that you know what factors make the difference when it comes to insurance premiums. These factors are called insurance rating factors.

So, what are these insurance rating factors that make the difference in car insurance premiums?

We looked at the factors that affect insurance premiums most and put them down in this article to help you make your insurance purchase decisions.

What Are Insurance Rating Factors?

When calculating the premium or insurance price, insurers use the policyholder’s vehicle, person, and driving-related factors. These are the insurance rating factors that insurers use to predict how likely you are to make a claim.

Simply put, rating factors are vehicle, driving, and individual characteristics specific to a policyholder, which determines the policyholder’s approximate premiums.

Since the rating factors determine the customer’s risk level, insurers use them to calculate the premiums.

Typically, the less risky you appear to be from the risk factors, the lower your insurance premiums, which means your car insurance policy will be cheaper.

What Rating Factors Affect Car Insurance Premiums?

The factors that affect car insurance rates affect car insurance premiums. These factors can be grouped into four categories:

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

Factors Affecting Insurance Premiums The Most

Here is a description of 10 factors that affect car insurance premiums the most.

1] State Coverage Requirement

Each state has its own specific laws about car insurance. They have different minimum requirements and different categories of minimum coverage required.

The fines that states impose on insurance also dictate the cost of your insurance policy.

The more coverage your state requires you to buy, the more expensive your insurance policy is likely to be.

2] Age and Driving Experience

Under 25 years old, young drivers pay more insurance premiums because they have less driving experience and are deemed high risk and likely to be involved in an accident.

After 25 years, insurance premiums start decreasing as drivers become more experienced and mature.

Notably, senior drivers over the age of 65 years are also charged more in insurance. Even though they have more experience, they are high-risk drivers because they can get injured easily in an accident.

3] Car Make and Model

Generally, some cars are cheaper to insure than others. For example, safe vehicles are less risky, and they’re less likely to generate expensive claims. So a car whose safety is rated highly will give you discounts in premiums.

Your car’s model, make, current value, safety, cost of the body shell, cost of replacement parts, and age are used to determine its insurance rates. Insurers group together these factors to calculate the premiums.

On the other hand, more expensive car models that have costly replacement parts attract higher rates because of the costs related to their parts, repair, or replacement.

4] Driving Record or History

Insurers don’t like high-risk drivers. Car accidents and high-risk traffic violations could see a price jump of your premiums anywhere from 20% to 200%.

Tickets, accidents, moving violations (DWI, speeding, DUI, etc.), multiple infractions, or previous insurance claims on your record makes you a high-risk driver to your insurer.

If you have a clean record, you may get up to a 40% discount on your premiums than a driver with imperfect records.

Some insurance companies use traffic violations and infractions to factor in your car insurance premiums for up to three years. But others keep the record longer to keep charging you higher rates.

After three years of your latest incident, you should shop around again to find if you can get a better deal from a different insurer.

5] Credit Score and History

In most states, many insurers pay significant consideration to your credit score when determining your rates. Only California, Massachusetts, and Hawaii don’t allow car insurers to consider your credit score when calculating your premiums.

In the states that use the credit score, you will be charged more if your credit score is poor or if you have no credit history. But you can get insurance discounts if you have a great credit score.

How do insurers consider credit scores in premiums? Typically, they assume that individuals with low credit scores have a higher likelihood of filing for claims or even committing insurance fraud.

6] Mileage (annual mileage)

According to insurers, the logic of mileage is simple: the less you’re on the road, the less exposed you are to an accident, and the more you drive, the more likely you’ll be involved in an accident.

Insurance companies will, thus, charge you more if you have a long daily commute. Those who drive for leisure are more likely to pay fewer premiums.

If your annual mileage drops, you should let your insurer know because this may save you money on your next insurance renewal.

7] Zipcode or Where You Live (drive)

Depending on where you drive, work and park your car (including at night), you might get a discount (or upcharge) for your address. In cities with higher crime rates and crowded roads prone to accidents, you’ll pay higher insurance premiums.

Rural dwellings have fewer property crimes, and the roads are less congested. This can translate to insurance documents or less cost of the insurance policy.

8] Gender

Most states allow providers to use gender in determining the rates. Men and women below 25 years old pay the most for car insurance, but women pay about 15% less than their young male peers. This gender gap evens out once the drivers reach their 30’s, where men and women pay comparable rates.

In this discrimination, insurers reason with data because car crash statistics show that males under 25 have a high likelihood of being involved in a crash than their female peers.

In Arizona, insurers use gender alongside age and driving experience when calculating car insurance rates.

9] Marital Status

Statistically, married drivers are the least risky drivers in insurance. They are careful on the road and have up to 50% fewer accidents or collisions when compared to other drivers.

Let your insurance provider know if you get married to qualify for marriage discounts on your next renewal.

10] Insurance Record

Your insurance record includes claims, previous insurers, default payments, lapses, and continual history, among others. These factors determine if you’re high risk or not.

Insurance companies perceive drivers who default or lapse as high risk. This makes their rates higher compared to those without any lapse in their insurance records.

Besides, having a continual car insurance history gives you important points in your insurance score, giving you discounts.

Final Word

Each rating factor affects car insurance rates differently, and insurers weigh them differently when calculating your premiums. Some of the factors are within your control, such as mileage, credit history, and driving record. Other factors are largely out of your control, such as your age, state coverage requirement, or the city’s population density. But you can find a balance and reduce your premium rates.