Jeffrey Wade
Auto insurance premiums are calculated based on a variety of factors, including personal details such as age, gender, location, driving record, claims history, credit score, and marital status. The type of vehicle being insured is also important, with factors such as the cost of the car, the likelihood of it being stolen, and its safety features all playing a role. Insurance companies also consider broader factors such as inflation, driving trends, and weather events when setting premiums. Ultimately, each insurance company uses its own formula to determine coverage costs, and premiums can change over time as personal circumstances and external factors evolve.
| Characteristics | Values |
|---|---|
| Driving record | The better the record, the lower the premium. Accidents or serious traffic violations will increase the premium. |
| Mileage | The more miles driven, the higher the premium. |
| Location | Urban drivers pay higher premiums due to higher rates of vandalism, theft and accidents. |
| Age | Younger, less experienced drivers tend to pay more. |
| Gender | Women tend to pay less due to fewer accidents and less severe accidents. |
| Car type | The cost of the car, the likelihood of theft, the cost of repairs, engine size and safety record all impact the premium. |
| Credit score | A higher score typically results in a lower premium. |
| Type and amount of coverage | The higher the coverage, the higher the premium. |
| Marital status | Married people are less likely to file claims and so pay lower premiums. |
What You'll Learn
Driving history
Insurers are in the business of assessing risk. If your driving history is riddled with multiple examples of bad judgment and unsound driving habits, auto insurance companies will view you as a high-risk driver. They might even refuse to cover you or charge you extremely high premiums. A single wreck or speeding ticket can sometimes double or triple your rate.
Most insurance providers will increase your premiums for 3 to 5 years after a major moving violation conviction or an at-fault accident. Your rates will drop after this time period, as long as you maintain a clean record. However, your insurance company will still keep track of all your accidents and violations, and this information will be used to determine your rates in the future.
Many states use a points system for tickets and serious moving violations. These points will remain on your driving record for a designated period, and the more points you accumulate, the higher the risk you are to an auto insurance company. There are ways to remove points from your record, such as taking a defensive driving course or attending traffic school.
While you cannot change your driving history, it can serve as a reminder to always drive with caution and care. As time goes on, the effect of past accidents on your premiums will decrease.
State Auto Insurance: Who Owns It?
You may want to see also
Age, gender, and marital status
Age
Younger drivers are considered high-risk due to their lack of driving experience and tend to pay the highest auto insurance premiums. Data from the National Highway Traffic Safety Administration (NHTSA) shows that younger, less experienced drivers are statistically more likely to drive dangerously and be involved in fatal accidents. Crash rates per mile driven for 16- to 20-year-olds are four times higher than those of older drivers. As a result, teens and young adults typically pay the highest insurance rates.
Auto insurance premiums generally decrease once a driver turns 25 and continue to drop as they get older and gain more driving experience. However, this decrease in premiums is not immediate and occurs gradually over time. Around age 60, premiums bottom out and then begin to rise again at age 75 as the risk of being injured or killed in a car crash increases for older adults.
Gender
Gender also plays a role in auto insurance rates, with women often paying less than men. Women are statistically less likely to be involved in car accidents, and when they are, the accidents tend to be less severe. Men are considered riskier to insure as they tend to drive more miles and engage in riskier driving behaviours like speeding, driving under the influence, and not wearing seatbelts. From 1975 to 2019, men died in car crashes at twice the rate of women, with 71% of motor vehicle crash deaths in 2019 being male.
However, the gender gap in insurance rates narrows as drivers age and gain more driving experience. In some age groups, women even pay slightly more than men, though the difference is usually negligible. Between the ages of 30 and 50, men may pay slightly less than women, but the difference amounts to less than a dollar a month for most people.
It is important to note that some states, such as Hawaii, Massachusetts, and North Carolina, prohibit gender from being used to set auto insurance rates, while other states apply the same rating factors to both men and women.
Marital Status
Marital status also impacts auto insurance premiums, with married individuals often paying lower rates than their single counterparts. On average, a married 20-year-old pays 21% less than a single 20-year-old for the same policy. This difference is even more pronounced when divided by gender: a single 20-year-old male pays 25% more than his married counterpart, while a single 20-year-old female pays 28% more.
The reason for this disparity is that married individuals are generally considered more responsible and careful, which translates into better driving behaviour. Additionally, married people are more likely to own homes and purchase life insurance, making them a better business opportunity for insurers.
However, the difference in premiums between married and unmarried drivers decreases significantly as they get older. For example, a single 25-year-old may only pay 7% more for auto insurance than a married 25-year-old.
Auto Insurance: Hail Damage Covered?
You may want to see also
Vehicle type and value
The type and value of your vehicle are significant factors in determining your auto insurance premium. The make, model, and year of your car are all important details that insurers consider when calculating your premium. Each vehicle has a unique Vehicle Identification Number (VIN), which provides information about its specifications and equipment. Insurers use this information, along with data collected about similar cars, to establish a vehicle code or symbol, which helps them set the appropriate premium.
One of the critical factors influencing the premium is the cost of repairs for your vehicle. If a car requires expensive components or repairs, the insurance premium is typically higher. Conversely, cars with safety measures and advanced safety features tend to be cheaper to insure since they are less susceptible to damage and protect drivers from costly damages in collisions. Basic versions of cars without many luxury features tend to have lower insurance costs.
The size and weight of your vehicle also play a role in determining the premium. Larger and heavier vehicles often have higher insurance premiums because they have a higher potential for damage and pose a greater risk to other road users. Additionally, the value of your vehicle and how often that specific type of vehicle is stolen are factors that insurers consider when setting the premium.
The intended use of your vehicle is another essential aspect. Insurers evaluate the level of potential risk associated with insuring it based on whether it is for personal or commercial use. Commercial vehicles, such as delivery trucks or taxis, tend to have higher insurance rates due to their frequent use and the need to transport goods or passengers for profit. Personal vehicles, on the other hand, are typically used for commuting, running errands, or leisure trips, and their insurance rates may vary depending on the specific usage and mileage.
Boost Your Auto Insurance Score
You may want to see also
Location
Auto insurance providers consider multiple factors related to location when calculating premiums.
Population Density
The number of people and vehicles in an area is a crucial factor in determining the car insurance premium. More people and cars mean a higher risk of accidents or incidents. Therefore, insurance premiums tend to be higher in cities than in rural areas. For example, rates in Vermont, a sparsely populated state, are among the lowest in the United States.
Crime Rate
The crime rate in an area is another important factor. A high crime rate translates to a higher-risk area for insurance companies. The chance of a car being stolen, broken into, or vandalised is greater in these areas, which can result in slightly higher premiums.
Weather Conditions
Insurance providers also take into account the local weather conditions. Areas prone to harsh weather, such as heavy rain, hail, snow, or flooding, have a higher risk of accidents. As a result, insurance providers may charge higher premiums to customers living in these areas.
Infrastructure
The quality of infrastructure, such as roads and lighting, can also impact premiums. Poor lighting and road conditions, such as potholes and dangerous intersections, increase the probability of accidents, leading to higher insurance costs.
Local Competition
The local insurance market scenario can also affect premiums. The cost of premiums may vary depending on the competition among insurance providers in a particular locality.
State and Local Regulations
The rules, regulations, and laws in a specific locality or state can also impact insurance premiums. For example, states with higher minimum coverage requirements, such as Michigan, tend to have higher insurance premiums than states with lower minimum requirements, like Wisconsin.
Calculating Vehicle Insurance Costs
You may want to see also
Claims history
Insurance providers scrutinise claims history to assess the risk associated with insuring a particular driver. Multiple claims, regardless of their nature, cost insurance companies money. Thus, a history of frequent claims indicates that a driver could be a financial liability. Consequently, insurers may increase premiums to compensate for this risk.
The nature and details of the claim are also important. For instance, at-fault accidents almost always lead to higher insurance rates, whereas some insurers may not increase premiums for minor accidents or the first accident. The time elapsed since the last claim is also considered, with rates decreasing as time passes.
In addition to at-fault accidents, not-at-fault accidents and comprehensive claims can also result in higher premiums. Not-at-fault accidents indicate a higher likelihood of future accidents, and comprehensive claims, such as car theft or vandalism, suggest an increased risk of future claims.
Furthermore, the accuracy of collision reports is crucial. Incorrectly assigning fault or an open claim status can potentially increase premiums. Therefore, it is essential to verify these reports for accuracy.
To summarise, claims history plays a significant role in calculating auto insurance premiums. Insurance companies consider the number, nature, and details of claims when assessing risk and determining rates. Understanding how claims history impacts premiums can help drivers manage their insurance costs and make informed decisions about their coverage.
Report Single-Vehicle Accidents to Insurance?
You may want to see also
Frequently asked questions
An auto insurance premium is the amount of money you pay your insurance provider. It is usually paid every six or 12 months, but monthly payment plans are also offered by many providers.
There is no standardized way to calculate auto insurance premiums as each provider calculates them differently. However, some common factors that influence the calculation include your age, gender, location, the type of vehicle you drive, your driving record, and your credit score.
The type and value of your vehicle, your driving record, how often and how far you drive, where you live, your age, gender, credit score, and marital status can all impact your auto insurance premium.
You can lower your premium by dropping unnecessary coverage, comparing rates from different providers, taking a driver safety course, choosing usage-based insurance, and bundling policies for multiple vehicles or homeowners/renters insurance.
Auto insurance premiums typically change every six or 12 months, depending on the plan and company. However, they can also change due to external factors such as an increase in insurance claims or changes in state legislation.
