Car insurance premiums can feel confusing. You and your neighbor can drive the same type of cars but pay big differences in insurance prices. Why? The amounts you pay for insurance comes from complex calculations that insurance companies perform to figure out risk and how likely a person is to file a claim. They ask the question, how expensive is potential claim?
Each insurance company has their own set of algorithms, but they analyze the same variables most companies do. These factors include you, the details of your vehicle, your driving habits, and where you live. Knowing the insurance variables is the first step to have more control over the cost. This complexity shows why your premiums are higher and what you can do to bring them down.
This guide will cover the most important things in detail that make up the reason for your car insurance premium. We will cover things such as your personal information, car details, where you live, and what policy you choose, and give you a fundamental understanding of how insurance companies measure your risk, and give you things you can do to make sure you get the best premium with your insurance company.
Factors About You Personally: It Starts With You
For insurers, the journey begins with you, the driver. Your personal details and history are the initial indicators that will help them appropriately guess how you’ll drive in the future. Some of these characteristics, such as your age, are outside your control. However, some, such as where you live are within your control.
Driving History and Record
Your driving history is undeniably the most important. Your driving record is the best predictor of future risk, and the insurance companies have the most complete information on it. If you have a clean record, with nothing but responsible driving, an accident-free history, and no rule-breaking that hurt your driving record, they will be able to see you are a responsible driver, and will be able to offer you lower rates. If, however, you have been in a number of accidents and are on your record that you have driven irresponsibly in the past, all of the insurance companies will be able to see you are somebody they cannot offer low rates to.
At-Fault Accidents: Insurers think that an at-fault accident is evidence that you are a higher risk because you could cause another accident. An at-fault accident will make your insurance premium higher by 30-50% or more because of the accident being on your insurance record for a number of years.
Traffic Violations: Insurers think that at-fault accidents will make you a higher risk for future claims. Insurance is impacted by a numerous amount of traffic violations, such as speeding, going through a red light, or other kinds of reckless driving, as well as DUIs. DUIs especially are very serious and could make it almost impossible for you to get insurance at an affordable rate. Even small driving violations, such as speeding, will get your rate increased and higher insurance is almost expected.
Claims History: The history of insurance claims you’ve made, along with the claims you’ve made, affects insurance premium rates as well. If you are driving in high risk ways and the insurance company thinks you drive in high risk ways, then the rate could go higher.
Example: There are two people with the same amount of insurance and the same amount of coverage in the same insurance company. Driver A has a clean record while Driver B caused an accident last year and has two speeding tickets. Driver A will get the insurance for a much lower rate than Driver B and will have the insurance for the same amount of coverage. This is because Insurers think Driver B is much more likely to cause an accident based on their history with driving.
Age and Driving Experience
Age and accident rates are positively correlated (the older you get the less likely you are to get into accidents, and this is likely due to age and experience). This is why older, more experienced drivers get into accidents at a lower rate than younger, less experienced drivers).
Teen Drivers: Teen drivers are the most expensive group to cover because of their high risk-taking behavior and inexperience.
Young Adults (Under 25): As young drivers get older their rates start to lower (25 and older) as they are likely to get more driving experience and are less likely to get into accidents).
Senior Drivers: Drivers over 70 start to get high risk premiums again. This is due to their age, and also because experienced drivers start to lose their vision, hearing and reaction time which is also a high accident risk.
Credit History
In many states, credit history, or the score used to determine rates of credit-related risk, plays a role in determining the rate you get quoted for premiums. This is because credit history correlates with number of claims, people who file claims frequestly tend to have lower credit scores. This is how insurance companies determine risk. It is also how they determine financial responsibility, which is likely to be linked to behavior. This practice is banned in a few states.
Marital Status
People who are married get into less accidents than people who are single, even if they are the same age. Because of this insurance companies see marriage as a sign of stability, and as a result, they offer married people lower insurance premiums.
Vehicle-Related Factors: What You Drive Matters
The car you insure affects your insurance premiums. All the insurance companies look at the purchase price, how expensive it is to repair, and the safety ratings.
Make and Model of the Vehicle
The specific car you drive is a huge piece of the puzzle. Insurers have databases with data from nearly every vehicle model, and trad keepin claism data for every one of those car models.
Cost of Repairs: It’s expensive to repair rarer vehicles, or even vehicles with a specialized technology. Repair cost directly affects premiums for collision and comprehensive covergage. For example, a hipch-end European car is much more expensive to repair than a common family sedan, and would have a higher collision and comprehensive coverage.
Theft Rate: comprehensive coverage premiums will be higher if your vehicle is one that gets stolen a lot.
Vehicle Performance. Fast sports cars drive dangerous, which leads to steeper insurance premiums because the risk of accident-related claims is much higher.
Example. A new Porsche 911 comes with exorbitant premiums because the risk to the insurer from fast speed claims is so much more than a new Honda CR-V. The Porsche is also more costly and gets higher repair bills, which further increases the risk.
Vehicle Age and Value
The value of your car, also termed loss value or Actual Cash Value (ACV), is how much an insurer owes if the car is stolen or gets totalled in an accident. A new and expensive vehicle will have higher insurance premiums than an old vehicle, becasue the potential loss is much more. Once a car gets older and depreciates, the premiums for comprehensive and collision coverage typically also decrease.
Safety and Security Features
New cars that have it braking, lane change prevention, and other safety features have perks from insurance companies because they are less likely to get in an accident.
Security Features: Safety measures such as anti-lock brakes (ABS), airbags, electronic stability control, and blind-spot detection can lessen the chance and impact of incidents occuring. Vehicles that receive a high safety score from the Insurance Institute for Highway Safety (IIHS) often receive a safety discount.
Anti-Theft Devices: Features that can reduce the risk of theft such as car alarms, immobilizer systems, and GPS tracking devices can also provide a discount on your comprehensive coverage.
Location-Based Factors: Where You Live and Drive
Your geographic location, right down to your ZIP code, has a powerful influence on your car insurance rates. Premiums can vary dramatically from one state, city, or even neighborhood to the next.
Your ZIP Code
Your insurers evaluate the volume of claims by region. If a specific ZIP code has a high number of people, traffic congestion, and frequent accidents, insurers will increase premiums for all people in that area.
Urban vs. Rural: Drivers living in cities, especially larger ones, tend to pay more for insurance than those from rural areas. There is a greater chance of an accident, theft, or vandalism with a higher volume of vehicles on the road. For instance, a driver in downtown Los Angeles would pay a lot more for insurance than someone with a lower volume of traffic in a small town in Wyoming.
Weather Conditions: locations that experience incidents of severe weather (ex. hail storms, floods, hurricanes, etc. ) will incur higher rates for comprehensive coverage due to increased likelihood of claims filed as a result of weather-related incidents.
Crime Rates and Traffic Statistics
Insurers will analyze the local region’s history of auto crime incidents, and if you live or park your car in an area with poor auto crime rates, your comprehensive coverage premium will be higher to account for the increased likelihood of crime incidents.
Your Commute
Factors that affect your car’s insurance rates are how much you drive and what for, and in what time of the day you drive. The more time you spend on the road, the higher your exposure to risk.
Annual Mileage: someone with a long daily commute will pay more than a retiree who only drives a few thousand miles a year.
Purpose of Use: More insurance coverage are applied if you use your vehicle for transportation of business.
Policy and Coverage Factors: The Choices You Make
Lastly, the specific coverages you choose and the limits and deductibles you choose will contribute to the total premium of coverage you will pay.
Types and amounts of coverage
Choosing the \”types of coverage\” is the most basic level of coverage you can choose. Typically, a \”full coverage\” policy (i.e. one that has liability, collision, and comprehensive) is significantly more expensive than \”bare bones\” policies that is PO liability only. Also, the limits their policies have become important. The most cost-effective option is going to be the state minimum liability limits. However, these limits do offer the *least* amount of financial protection. If you choose higher limits (e.g. the \”100/300/100\” option) your primary will be higher but you’ll have a much more important safety net for your assets after a serious accident.
Deductible amount
A deductible is the amount you have to pay out of pocket for either a collision \”comprehensive,\” and mixed claim, or anything else, before they pay the remainder, and so it is a collision or comprehensive claim. The relationship of your deductible to your premium is straight and inverse:
Higher Deductible = Lower Premium: If you choose a deductible of about $1,500, you are obviously taking a greater portion of the initial financial risk so the insurer tends to charge a lower premium.
Lower Deductible = Higher Premium: A $500 deductible means the insurer will have to pay more on the claim. Hence, they tend to charge a higher premium.
Here are some tips that could help out with lowering your car insurance premiums:
Having a Clean Driving Record: This is, and will be, the most effective way to improve this over the long term. This is pretty simple, just drive safely, and follow the traffic laws, then you will then be able to avoid accidents and not get a ticket.
Look Around for the Best Price: Car insurance is one of those things that are really competitive in pricing. This is just a simple matter of looking for the best price. Every now and then, at least once a year, and especially after a major life event, like a big move, buying a new car, or getting married, get some quotes from multiple insurance companies.
Look to Increase your Deductible: If you have some decent savings, or a good possible emergency fund, increasing your deductible is one of the best and quickest ways to lowering your premium.
Look for Discounts: Don’t just wait for the insurance companies to give you offers, be proactive, and ask what offers they have first. There are many discounts, like for a good student or graduating from a safe driving course. There may be discounts for people with home insurance or safety features and some professional or alumni groups are eligible.
Improve Your Credit Score: If you’re in a state where credit matters, consider working on paying bills on time and managing your debt to raise your credit-based insurance score.
Consider the Car You Drive: If you’re going to buy a new car, check the insurance costs first. They will be cheaper to insure if the vehicle has a good safety rating, low repair costs, and a low theft rate.
Reduce Your Coverage on Older Cars: If you have an older car, the cost of collision and comprehensive coverage might not be worth it if the car has low market value. You might want to drop coverage if the car is worth less than 10 times the annual premium for the coverage.
Report Lower Mileage: If you’ve started working from home, or if your driving habits have changed, you should let your insurer know. They can lower your premium for driving fewer miles.
Simeon Technologies specifically custom tailors all automobile insurance quotes and coverages to your active driving habits, as well as to the make and model of the automobile you control and the coverages you select. Knowing how that risk is measured will help you shift your view of your insurance premium as just a bill, to an insurance premium that is actually as active as you are, which will offer you the opportunity to make smarter choices, to ask the right questions, and to ultimately provide the right insurance, at the right price, and with the right coverage.
