Auto Insurance Rates: 36 Terms You Need To Know

Auto insurance rates are determined by a multitude of factors, including age, gender, driving history, location, vehicle type, and credit score. The cost of auto insurance varies depending on these factors, with rates tending to be higher for younger drivers, males, those with a history of accidents or violations, urban residents, and individuals with poor credit. Conversely, factors such as a clean driving record, infrequent vehicle use, and living in an area with low rates of theft and vandalism can contribute to lower insurance rates. The type and amount of coverage also play a significant role, with state-mandated minimum coverage typically being more affordable than full coverage options. Ultimately, auto insurance rates are personalized for each driver, taking into account their unique characteristics and circumstances.

Driving record

A driving record is one of the most influential factors in determining auto insurance premiums. A driver's history is used by insurance companies to assess the level of risk associated with insuring them. A clean driving record with no accidents or violations generally results in lower insurance premiums. Conversely, a history of accidents, traffic tickets, or other infractions can lead to increased rates.

Accidents, particularly those where the driver is at fault, signal a higher risk to insurance providers. Drivers with a track record of accidents are more likely to file insurance claims, resulting in increased costs for the insurer. Multiple accidents on a driving record can lead to insurance companies perceiving the driver as a higher liability and adjusting their premiums accordingly.

Traffic violations, such as speeding tickets, reckless driving, or running red lights, are red flags for insurers. These infractions indicate a disregard for traffic laws and responsible driving behaviour. Insurance companies view these violations as indicators of increased risk and may raise premiums as a consequence. Multiple violations can have a cumulative effect, amplifying the impact on insurance rates.

Driving under the influence (DUI) or driving while intoxicated (DWI) is a serious offence that significantly impacts auto insurance premiums. Such convictions signal a high level of risk and demonstrate irresponsible behaviour behind the wheel. Insurance companies may respond by increasing premiums substantially or, in some cases, refusing coverage altogether due to the elevated risk associated with DUI/DWI offences.

In some jurisdictions, insurance companies employ a point-based system to assess a driver's risk. Insurance points are assigned for accidents, violations, and other driving-related offences. Accumulating points can result in premium surcharges, causing insurance rates to increase based on the number of points on a driving record. The severity and frequency of offences determine the number of points assigned.

While past driving infractions can have a lasting impact on insurance premiums, there are steps that can be taken to mitigate their effect over time:

• Completing a defensive driving course can demonstrate a commitment to safe driving and potentially qualify individuals for insurance discounts.
• Maintaining a clean driving record for an extended period can gradually improve insurance rates, as insurers consider more recent driving history as a positive indicator.
• Shopping around for quotes from multiple insurance providers can be beneficial for individuals with less-than-perfect driving records, as different companies may have varying policies and rates for drivers with infractions.
• Improving one's credit score can indirectly help lower insurance costs, as credit scores are used by insurance companies to determine premiums in some states.

In summary, a driving record plays a crucial role in determining auto insurance premiums. A clean record with no accidents or violations generally results in lower rates, while a history of accidents, traffic violations, or DUI/DWI offences can lead to increased costs. Practicing safe driving habits, maintaining a clean record, and taking steps to improve driving skills can help mitigate the impact of past infractions over time.

Vehicle usage

The more you drive, the higher the chances of an accident, so insurance companies consider high-mileage drivers to be riskier to insure. This means that those who drive more than 15,000 miles per year will usually pay more for their insurance. Conversely, if you drive less than 12,000 or 10,000 miles per year, you will often be eligible for lower rates.

The purpose of your trips also matters. If you drive your car for work or commute long distances, you will likely pay more than someone who only drives occasionally for pleasure. This is because the more time you spend on the road, the more likely you are to be involved in an accident.

Some insurance companies offer usage-based insurance (UBI) programs that track your driving behaviour and reward you with lower rates if you drive safely. These programs usually measure speeding, acceleration, harsh braking, mileage, and the time of day you drive. However, it is important to note that if you do not score well during the review phase of a UBI program, your insurance rates may increase.

In addition to the number of miles you drive, the type of vehicle you drive also affects your insurance rates. Newer cars with more technology and advanced safety features tend to be more expensive to insure, as they have higher replacement part costs and require special mechanics. However, if your new car has cheaper parts or is driven by a low-risk driver, your insurance rates may be lower.

In summary, vehicle usage plays a significant role in determining auto insurance rates. Insurance companies consider both the number of miles driven and the purpose of trips when calculating rates. Additionally, UBI programs can impact rates by tracking driving behaviour, and the type of vehicle you drive also affects insurance costs.

Location

Auto insurance rates vary depending on your location, and even moving across town could result in a cheaper or more expensive premium. Your location is one of the most influential factors in determining your auto insurance premiums. When you apply for car insurance, insurers will look at risk factors associated with your ZIP code, such as crime rates, crash statistics, and population density.

Traffic Density

Vehicles driven in areas with high traffic volume are exposed to a higher risk of accidents. Insurers might also look at the rate of car thefts, which tends to be higher in crowded urban areas.

Accident Reports

Regardless of traffic patterns, a high number of motor vehicle crashes signals to insurers that an area may carry higher insurance risks.

Property Crime

Comprehensive coverage pays out for losses due to vehicle theft or vandalism, so if your area sees high property crime rates, you may pay more for full coverage.

Repair and Healthcare Costs

In high-cost areas, auto repair bills and medical bills may be higher, leading to more costly insurance claims and higher premiums for local vehicle owners.

Weather Patterns

If your city is subject to severe weather that can lead to accidents and insurance claims, your insurance company may charge a higher rate.

Rural vs. Urban Areas

Generally, rural areas are cheaper than urban areas for auto insurance. Urban areas with a dense population and a lot of cars tend to be more expensive.

Crime Levels

The more car thefts in an area, the more you will be charged for your insurance to account for the increased likelihood of vehicle theft.

Accidents

The more accidents there are in your ZIP code, the higher your insurance rate will be. This is because your risk of getting into an accident and filing a claim is increased.

Road Conditions

Potholes and bad roads correlate to more accidents. More accidents lead to more claims being filed. Road conditions also contribute to wear and tear on your vehicle, making you more likely to be in need of repairs.

Age

Teens are considered the riskiest drivers and pay the highest auto insurance rates. According to the Insurance Institute for Highway Safety, drivers aged 16 to 19 are four times more likely to be involved in car accidents compared to older drivers. This age group accounts for 7% of all fatal accidents, despite only representing 4% of drivers in the US. As a result, insurance companies charge higher premiums to offset the higher costs associated with teen driving claims.

As drivers move into their twenties, their insurance rates typically decrease. By the age of 25, drivers are no longer considered high-risk, and insurance rates become more affordable. This is because, by this age, drivers have gained more experience behind the wheel and are less likely to be involved in accidents.

Insurance rates continue to decrease gradually throughout a person's thirties and forties, as long as they maintain a clean driving record. However, once drivers reach their seventies, insurance rates start to increase again. This is due to factors such as age-related vision and hearing loss and slower reaction times, which can increase the risk of accidents.

While age is a significant factor in determining insurance rates, it is not the only one. Other factors that can influence auto insurance costs include gender, driving record, credit score, location, vehicle type, and driving history.

Gender

The difference in insurance rates between men and women is most pronounced in younger drivers. For example, 16-year-old males pay on average $843 more than their female counterparts, while 20-year-old males pay $454 more. After the age of 25, the gap in insurance rates between the genders narrows, and by age 30, males and females pay almost the same rates. In some age groups, women even pay slightly more than men, but around age 35, average rates are usually the same.

However, the relationship between gender and insurance rates is not always straightforward. Recent studies by the Consumer Federation of America (CFA) have found that in some states and insurance companies, women are charged more for auto insurance than men, even when they have a good driving record. For example, in Arkansas, men pay on average $529 for auto insurance, while women pay $537. In Delaware, one major insurer charged 35-year-old women 21% more than men of the same age, and in Louisiana, the same insurer charged women 17% more than men.

The practice of using gender as a factor in setting insurance rates is not universal. Some states, including California, Hawaii, Massachusetts, Michigan, Montana, North Carolina, and Pennsylvania, have banned insurers from using gender as a factor in determining insurance rates. Additionally, some insurance companies, such as State Farm, Shelter Insurance, and Auto-Owners, have discontinued the practice of using gender as a rating factor.

It is worth noting that the term "gender" in this context may refer to sex, as insurance companies typically ask for the gender/sex listed on an individual's driver's license or birth certificate. This can create challenges for transgender and non-binary individuals when applying for car insurance. While there is limited data on how insurance rates are determined for these individuals, it is recommended that they shop around for quotes and seek out LGBTQ-friendly insurance agents and companies.

Frequently asked questions