Paul Sanchez
There are many factors that determine the cost of car insurance. While average car insurance rates can be a good indicator of what you may pay for coverage, your own price will likely differ. Factors like your personal characteristics, driving history, age, location, credit score, and car model have a major impact on what you’ll pay, which will likely be different from the national average. Car insurance rates can also vary widely for drivers in different states.
| Characteristics | Values |
|---|---|
| Age | Younger drivers pay higher insurance rates on average. |
| Driving history | Drivers with a recent DUI, at-fault accident, or traffic violation on their record will see their insurance rates increase. |
| Credit score | Poor credit can result in higher insurance rates, with some insurers charging significantly more than others. |
| Location | Car insurance rates vary by state, with certain states having cheaper or more expensive rates on average. |
| Vehicle type | The type of car driven can affect insurance rates, with factors such as car model, make, and mileage being considered. |
| Demographics | Gender and other demographic factors can influence insurance rates, although some states restrict the use of certain criteria, such as gender, in setting rates. |
| Business mix | Customer characteristics such as tenure, channel, claims experience, and commercial decisions can impact insurance pricing. |
| Market conditions | Factors such as auto-renewal opt-out levels, price walking removal, and changes to auto-renewal rules can influence insurance pricing. |
| Claims inflation | Increases in claims costs due to factors like higher used car prices, car hire costs, repair times, and inflation in car part costs can lead to insurers raising insurance prices. |
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What You'll Learn
Driving history
Insurance companies consider drivers with multiple violations and incidents on their record to be high-risk, meaning they are more likely to file a claim and cost the company money. As a result, insurers charge these drivers higher rates to offset the risk. The impact of driving history on insurance rates can vary depending on the company, as each insurer uses a unique formula to set rates. However, drivers with a clean driving record typically pay around $135 per month or $175 per month for full coverage, while those with incidents on their record can expect to pay significantly more.
For example, drivers with a single ticket on their record may pay an average of $171 per month, a 27% increase compared to those with a clean record. More serious violations, such as DUIs, can increase rates by as much as 50%, or even double the cost of insurance. In some states, a DUI conviction can increase insurance rates by 85-92% or more, resulting in an annual cost of over $4,000. Additionally, drivers with a DUI may be required to pay state fees and maintain specialised insurance coverage.
The length of time that incidents remain on a driving record can vary by state, typically ranging from three to five years. However, it's important to note that insurance companies rarely check a driver's record when a policy is renewed, only when a new policy is applied for. This means that there can be a significant difference in rates when switching insurance companies. Therefore, it is advisable for drivers to review their driving record and compare insurance rates from different companies to find the most suitable option.
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Credit score
When it comes to insurance, a good credit score can indicate to the insurer that the individual is less likely to file insurance claims. This results in lower insurance rates for individuals with higher credit scores. Conversely, a low credit score may signal a potential risk in financial management, indicating a higher likelihood of claim submissions, and subsequently leading to higher insurance rates.
Various factors contribute to an individual's credit score, including payment history, outstanding debt, credit history length, credit mix, and the pursuit of new credit. Payment history reflects how consistently an individual pays their bills, with a pattern of late payments negatively impacting the credit score. Outstanding debt refers to the amount of debt currently held, while credit history length considers how long an individual has had an open line of credit. Credit mix examines different lines of credit, such as auto loans, mortgages, and credit cards. Finally, the pursuit of new credit considers recent attempts to open new lines of credit.
It is important to note that insurance companies typically do not rely solely on credit scores but consider an individual's full credit report to determine their credit-based insurance score. Additionally, while most insurers use credit scores as a factor in pricing, states like California, Hawaii, Massachusetts, and Michigan have regulations limiting or prohibiting the use of credit scores in setting car insurance premiums.
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Age
Younger drivers, particularly those under 25, tend to pay higher insurance premiums due to their limited driving experience and a higher likelihood of accidents. Insurance companies consider young drivers to be more risk-averse and prone to distracted driving and speeding, which increases the risk of accidents. The cost of insurance for drivers under 25 is notably high, with 18-year-olds paying the highest premiums among the age groups. As drivers age, their insurance rates gradually decrease, with rates being the lowest for 60-year-old drivers, who pay an average of $158 per month for full coverage.
However, after age 60, insurance rates begin to rise again. This increase is attributed to age-related factors such as slower reflexes and a higher risk of accidents among older adults. An 80-year-old driver, for example, pays around $209 per month for full coverage, which is $10 more per month than a 25-year-old.
The impact of age on insurance pricing is further influenced by gender. Men, especially young men, tend to pay more for car insurance than women. The difference is most significant for drivers under 21, with men paying up to 11% more than their female counterparts. As drivers age, the gender gap in insurance rates narrows. At age 50, males pay only 1% more on average per year for full coverage than females in the same age group.
In addition to age and gender, other factors that insurance companies consider when determining rates include driving history, credit score, claim history, and the types of coverage chosen. The state or ZIP code of the driver can also impact insurance rates, as different states have varying insurance regulations and crime rates, which affect pricing.
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Type of car
The type of car you drive is one of the key factors in determining the cost of auto insurance. This is because luxury or more expensive vehicles often cost more to repair, so insurers will charge you more to insure them. For instance, models by Maserati, Audi, and BMW are among the most expensive vehicles to insure. In addition, if your car is one of the most popular models for car thieves, such as the Honda Civic or Honda Accord, your rates will also be higher. Foreign vehicles, such as a BMW, Toyota, or Mercedes, will also cost more to insure because most of these vehicles require special parts and mechanics specializing in foreign vehicles. Sports cars will also be more expensive to insure because their parts are generally much more expensive.
The cost of insurance also depends on the age of the vehicle. Newer vehicles cost more to insure because they are worth more. The trim level of a vehicle may also impact insurance prices, as trim levels that offer greater horsepower and luxury details can add to the vehicle’s MSRP, which could mean higher rates. However, the trim level of a vehicle may not impact insurance prices significantly, with an impact of around $5-$10 per month on insurance, depending on the vehicle. Generally, smaller vehicles are cheaper to insure because they are cheaper to replace, and body style is factored into the rate because it plays a part in safety features.
The safety ratings of a vehicle also influence insurance pricing. Safer cars are involved in fewer accidents, and thus get better rates. The price of the car is also a factor, as the higher the price of the car, the more you’ll pay for insurance. The availability of parts is another consideration, as a car that is rare and expensive to repair will be more costly to insure. The make and model of the vehicle are also important, as certain models are more expensive to insure than others.
It is important to note that insurance companies use many personal factors to calculate car insurance rates, such as age, marital status, driving history, and credit score. Additionally, car insurance rates can vary by state, and gender-based pricing of car insurance is banned by law in seven US states.
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Location
Your location can also influence your insurance rates at a more granular level. Insurance companies price coverage by zip code to adjust for the external rating factors associated with each area. Insurance costs are higher in locales with more drivers. Zip codes prone to floods, wildfires, crimes such as vandalism or theft, or other risks also face higher rates. In many cases, those in rural areas pay less in car insurance premiums than their urban counterparts.
Your location determines the potential risk of your vehicle being vandalised or stolen. Drivers in bigger cities with heavier traffic are more likely to be involved in crashes. For example, if the rate of accidents in your zip code increases, the rate of your car insurance premium can also increase, even if you don’t file a claim.
Drivers who live in metropolitan areas tend to pay more for coverage than those who live in suburbia due to higher rates of theft, vandalism, and car accidents. Other location-related factors include the cost of medical care, car repair costs, and the frequency of auto accident lawsuits.
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Frequently asked questions
Some of the main factors that affect IC insurance pricing include your driving history, location, age, gender, credit-based insurance score, and the type of car you drive.
Insurers consider dozens of factors to determine IC insurance pricing, including your driving history, location, vehicle, and demographics. They use these factors to predict how likely you are to file a claim and set your price accordingly.
To get the best IC insurance rate, it is recommended to compare quotes from at least three different companies. You can use online tools, such as Progressive's AutoQuote Explorer®, to compare rates and find the most suitable policy for your needs.
