Factors Used to Determine Car Insurance Rates

There`s no way around it. If you`re going to enjoy the luxuries and conveniences of driving a car, you have to have adequate car insurance rates. For those who are struggling to get by as it is, however, paying for quality auto insurance is often an expense they can`t afford. Though there`s no way to completely eliminate this bill, there are ways you can reduce your monthly premium so that you`re safe without breaking the bank.

Factors Used to Determine Car Insurance Rates 2

Before you start looking for cheap car insurance, having a clear understanding of how premiums are determined is recommended. Knowing what factors are impacting your rates can help you to make the necessary changes to make it more affordable. 

Why Insurance Isn`t Just One Flat Rate

You may be wondering why insurance companies don`t just charge the same low monthly rate to everyone to make it more affordable and convenient. Basically, insurance companies want to know if insuring you is a wise investment. They utilize information provided by consumers to determine how likely they are to pay premiums on time as well as the likelihood of you getting in an accident. 

Put simply, it boils down to risk. If the information provided shows that you will pay your premiums as required and that your chances of filing an insurance claim are low, then you`re considered a low-risk driver and will receive tons of offers. On the other hand, if the information provided constitutes what makes a driver high-risk, then you`re going to have fewer offers and higher rates. 

Determining Factors

So, what are the factors used by insurance companies to determine your rates? Check out this list below:

  • Age -- Your age can have a huge impact on how well a driver you are. If you`re a new driver between the ages of 16 and 25, you`re often considered high risk. This is essentially because this age group accounts for a large percentage of motor vehicle accidents. On the other hand, if you`re between the ages of 30-50, you are considered less of a risk and will pay much less for insurance. 
  • Driving History -- How well you drive is at the top of the list of factors insurance companies use to determine your premium. They pull driving records from your local motor vehicle department to check for any records of traffic tickets, accidents, or legal charges. If you`ve had some issues behind the wheel in the past 3-5 years, chances are you`re going to pay more for protection. 
  • Credit Score -- Your credit score is also used to decide how much you will pay for car insurance. Credit history gives insurance companies insight on your financial habits and responsibilities. If you have a credit report riddled with late payments and collection accounts or you have a high debt to income ratio, this is a red flag for insurance companies. It signifies you probably won`t pay your policy on time which puts them at risk. So, you`ll have to pay more for a policy. 
  • Location -- Where you live will also determine how much you pay for insurance. If you live in a heavily populated area where there are lots of drivers, the chances of accidents occurring are higher which means insurance companies take more of a risk.
  • Claims History -- If you`ve had an extensive history of filing insurance claims in the past, chances are you`re going to need to file a claim in the near future. Insurance companies see paying out policies as a loss which is why you`ll pay more for protection. On the other hand, if you haven`t had to file any claims this leads insurance companies to believe you`re a safe driver and less of a risk to insure.
  • Car Type -- The type of car you drive can increase or decrease your chances of being involved in an accident. A sports car driver will obviously have to pay more money than someone who drives a minivan. If your car is packed with safety features like parking assist and lane warning systems, you can save money on insurance because your chances of getting in an accident are less likely. 
  • Policy Type -- Last, but not least, insurance companies charge different rates for different policy types. If you have an older car or simply want the most basic form of insurance coverage to save money, a liability policy will cost you less than adding collision and comprehensive coverage. 

Car insurance really is a convenience. Especially if you find yourself in the midst of an accident. Paying those out of pocket costs yourself can bankrupt you for sure.  If you don`t have auto insurance due to costs, utilizing the information provided above can make things a bit more affordable. By doing things like improving your credit score, purchasing a safe car, and selecting the right type of policy you can get a significantly lower insurance quote, therefore, purchasing affordable coverage and peace of mind.