How Insurance Companies Calculate Your Car Insurance Rate

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UPDATED: Jun 29, 2022

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Written By: Jeffrey JohnsonUPDATED: Jun 29, 2022Fact Checked

When car insurance companies set car insurance rates they tend to favor customers who, statistically, are likely to be good risks while charging high risk customers higher premiums. A good risk to an auto insurance company is someone who is not likely to get into a car accident or otherwise file a claim to recover under their auto insurance policy. In order to build a customer base, auto insurance companies decide how much you should pay based on where you fit such risk factors as driving record, age, sex, number of miles driven per year, type of car, and more.

TIP: When comparing auto insurance rates, it is good to understand what factors affect your premium. By knowing how your auto insurance rates are calculated, you can find ways to lower your payments.

Your Car

Your car’s year, make, and model will impact auto insurance rates. The newer the vehicle, the more expensive the vehicle, the more costly it will be to insurance. Each vehicle is also rated by insurance companies and given a numeric symbol that represents how risky the vehicle is to insure. A lot goes into a vehicle’s symbol – year, make, model, safety features, crash information, etc. – are all calculated ahead of time to determine how much an insurance company should charge for insuring that car.

TIP: If you are thinking about buying a new vehicle and have one or two in mind, call your insurance carrier and see how the different year, makes or models may affect your rates. It might be your deciding factor.

Your Age and Gender and Marital Status

Car insurance companies will use personal factors such as age, gender and marital status into account when setting auto insurance rates.

  • Age: Age is a factor for people under 25, and for people over retirement age (depends on the insurance company). Both teenagers and seniors tend to have higher auto insurance rates because they are statistically more dangerous drivers than other age groups. However, elderly drivers can benefit from their experience and prior driving history.
  • Gender: Women have historically been a lesser risk of serious car accidents than men, and will get lower rates.
  • Marital Status: You can get a marital discount for being married. Just got hitched? Congratulations! Now, call your auto insurance carrier and ask what car insurance discounts are available to you.

Miles Driven Each Year

The less you drive, the less likely you are to cost the car insurance company by getting into an accident or filing a claim. This is why you are asked for the mileage you drive back and forth to work each day. The use of your vehicle usually gives the insurance carrier a good idea of your exposure to the road. If you are lucky and work close to home, this could save you not only in gas back and forth to work, but also on your auto insurance rates.

Home Location

Geographic location is one of the factors insurers use when pricing your auto policy. Auto insurance rates can change based on the following:

  • Urban v Rural: City dwellers generally pay more for insurance than those living in rural areas because the likelihood of an accident or theft increases where populations are larger. However, if a rural dweller lives in a region where dangerous weather is a constant concern, their auto insurance rates may be higher due to the increased risk of damage.
  • State Laws: Some states can require more auto insurance coverage than other states, which can increase auto insurance payments.

Thinking of moving? Check first to see how the change in zip code might affect your rates.

Your Credit Rating

The use of credit rating in car insurance premiums is standard in the industry. The thought being, the higher your credit score, the less risk you will be and therefore, the lower your premium.

Your History

Whether with the same company or another company, having insurance the prior six months can make a huge difference in your premium. Most companies give a renewal discount. If you remain with them and accident and ticket free, you will see a slight discount on your premium (or at least it will not go up in rate) upon renewal of your car insurance. They also ask when comparing car insurance rates if you have had six months prior insurance. If not, you will see a huge jump in your rate!

TIP: Maintain your auto insurance and avoid lapses in coverage. This will ensure you keep a level premium when comparing rates.

Driving Record

Your driving record is probably the most significant factor in your auto insurance rates, particularly if you are a high risk driver with a history of accidents, traffic violations, or DUI arrests or convictions. Underwriters look closely at your driver history to determine if you are a greater risk due to your driving habits.

TIP: Drive responsibly, not only for sake of your auto insurance rates but for the other drivers on the road.

All of these factors will contribute to your car insurance rates. Click here to get a free online quote for car insurance rates in your area.

For more information about getting the right car insurance policy to fit your needs, check out the following articles:

Click Here for a FREE car insurance quote today!

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Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.

Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

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