Factors Affecting Auto Insurance Premiums: What You Need To Know

Auto insurance companies use a multitude of factors to determine the cost of your premium. These factors are used to assess the level of risk you pose, and the higher your perceived risk, the more you will have to pay. Some of these factors are within your control, such as your credit history, while others are not, like your age or gender.

Driving Record

A driver's record is one of the most influential factors in determining auto insurance premiums. Insurance companies rely on historical data to assess the risk associated with insuring a driver. 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 and Insurance Claims

A history of accidents, particularly those where the driver is at fault, signals a higher risk to insurance providers. If a driver has been involved in multiple accidents, insurance companies may perceive them as a higher liability and adjust their premiums accordingly. Drivers with a track record of accidents are more likely to file insurance claims, which translates into increased costs for the insurer.

Traffic Violations and Moving Offenses

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 result. Multiple violations can have a cumulative effect, amplifying the impact on insurance rates.

Driving Under the Influence (DUI) or Driving While Intoxicated (DWI)

A DUI or DWI conviction 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 these offences.

Insurance Points and Surcharge Systems

In some jurisdictions, insurance companies use 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, meaning insurance rates will increase based on the number of points on a driver's record. The severity and frequency of offences determine the number of points assigned.

Mitigating the Impact of a Poor Driving Record

While past driving infractions can have a lasting impact on insurance premiums, there are several 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 drivers 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, 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 as a factor in determining premiums in some states.

Age and Experience

However, age is not the only factor at play here; driving experience also comes into it. The more time a person has spent behind the wheel, the less likely they are to make mistakes, and the cheaper their insurance will be. This is why insurance premiums tend to decrease as drivers move into their mid-20s and gain more experience on the road.

It's worth noting that age and experience are not the only determinants of insurance costs. Other factors, such as location, gender, and credit history, can also influence the price of auto insurance.

In conclusion, while age and experience are indeed factors that influence auto insurance premiums, it is important to recognise that they are just two of many variables that insurance companies consider when calculating policy prices.

Location

Auto insurance providers look at multiple factors when calculating your car insurance quote, and your location is an important one. The state, city, and ZIP code you live in can increase or decrease your insurance rate.

Insurance companies examine data to determine which areas are most likely to file claims. These claims fall into two categories: those arising from auto accidents and those resulting from vandalism or theft of your vehicle.

In terms of auto accidents, insurance companies calculate your likelihood of an accident based on the county or state in which you live. The more populated an area is, the higher the chance of a car accident. So, city drivers almost always pay more than those in rural areas. 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.

On the other hand, car theft and vandalism typically occur while a vehicle is parked, so the location in which your car is parked plays a significant role in calculating your odds of theft or vandalism. Insurance companies calculate your risk of vehicle theft or vandalism based on the city or neighborhood in which you live. If your neighborhood is prone to car theft, you are probably paying more for your car insurance than you would if you lived in a quieter, suburban neighborhood.

Additionally, harsh weather conditions such as heavy rain, hail, or snow can lead to a higher chance of an accident. If you live in an area prone to flooding, the high potential payout that a car insurance company would have to make to multiple policyholders can increase your premium to offset costs.

The state you live in can also influence your insurance premium. Car insurance is regulated at the state level and subject to each state's regulations. For example, Michigan, a no-fault state, requires all drivers to carry unlimited Personal Injury Protection (PIP) coverage by law. This makes car insurance expensive because the costs of PIP coverage and "unlimited" coverage are passed on to insurers. Consequently, Michigan's car insurance rates are more than $2,000 per year more expensive than in Ohio.

Vehicle Type

The type of vehicle you drive is a significant factor in determining your auto insurance premium. The make and model of your car can influence the cost of your insurance, with some vehicles being cheaper to insure than others. For example, a truck is around 3% cheaper to insure than a sedan.

Insurance companies prefer to insure vehicles with high safety ratings, as they are less likely to result in expensive claims. Cars with advanced safety features and anti-theft systems are often cheaper to insure, as these features reduce the likelihood of accidents and shield drivers from costly damages. Conversely, vehicles with expensive components or repair costs tend to have higher insurance premiums. Luxury cars, for instance, are usually more expensive to insure due to their high-value parts and repair costs.

The age of your vehicle also plays a role in insurance rates. In general, newer and more expensive vehicles will cost more to insure than older, base-model vehicles with high mileage. Additionally, sports cars are often considered higher-risk due to their association with racing, resulting in higher insurance premiums.

The size and weight of your vehicle are other factors that can influence your insurance rates. Larger and heavier vehicles, such as SUVs or trucks, may pose a greater risk to other road users and have higher insurance premiums. On the other hand, smaller and lighter vehicles, like smart cars, may be cheaper to insure.

It's worth noting that the presence of fancy features in your vehicle can also impact your insurance costs. Luxurious add-ons can enhance your driving experience, but they also contribute to higher insurance rates. In contrast, basic models without many additional features tend to have lower insurance costs.

Insurance History

Insurance companies view a driver's past as an indicator of their future performance. A history of tickets, violations, or claims will increase the cost of current and future insurance premiums. If you have a history of at-fault accidents, traffic violations, or a DUI/DWI conviction, you may be denied coverage by some insurance companies. In that case, you may have to purchase non-standard insurance for "risky" drivers or buy car insurance from your state's assigned risk pool.

However, if you have a short claims history or no claims history at all, you will be classified as a low-risk driver and will get the best rates on your auto insurance.

Insurance companies also consider a lack of continuous coverage as an indicator of higher risk. They assume that if you were licensed but didn't have insurance, you may have been driving without insurance. The difference between drivers with no previous coverage and those with five years of consecutive coverage is about $182 per year.

In addition, a "coverage gap" can cause higher rates when you buy auto insurance. For example, if your previous car insurance company canceled you for non-payment or you were between cars and didn't have auto insurance. To avoid a coverage gap, you can purchase non-owner car insurance to maintain continuous car insurance coverage.

You can check your auto insurance claims history by contacting your auto insurance company and asking for your claims history or a letter of experience. You can also obtain your claims history by ordering a CLUE (Comprehensive Loss Underwriting Exchange) report from the consumer reporting agency LexisNexis.

Frequently asked questions