Top 10 Factors that Affect Auto Insurance Rates
If you are here, you’re probably wondering why your car insurance premiums are through the roof. You’re probably asking yourself, “Why do my auto insurance rates keep rising?” Or perhaps you’re just tired of emptying your wallet and are in the market for a cheaper insurance company.
No matter why you’re here today, we take a look at the top 10 factors that affect your car insurance rates. Some factors are obvious and within your control, but others, well, not so much. Still, you can leverage the information you get here today to get the best absolute deal as far as auto insurance goes.
With that preamble, let us knock some dollars off your auto insurance premiums.
Which Factors Affect Your Car Insurance Rates?
You might not have thought about some of the factors we will outline in the following section. That could explain why you don’t understand why the cost of your car insurance goes up at renewal time.
Other times, we’re just too lazy to shop for new coverage and, unfortunately, our complacency might be the very thing costing us money.
That’s right, a report by TransUnion Auto Insurance Shopping Index indicates that only 15% of people with credit shop for a new insurance company per year.
Another report by The Zebra’s Insurance Experts shows that many drivers don’t compare car insurance quotes when shopping, which is just as detrimental to your finances. This is especially true if you can sign up with an insurance company that offers you the same coverage for a cheaper rate.
1. Driving History
If you drive recklessly, you can only expect your auto insurance premiums to spike every time you renew. Insurance companies don’t hide the fact that they base your future performance on your past driving history.
A bad driving history tinted with violations, tickets, accidents and numerous claims will inflate the cost of future insurance premiums. It is a no-brainer, which is why you should drive carefully like a cop is behind you at all times.
Some insurance companies will flat-out refuse to insure you if your driving record features serious infractions, such as driving under the influence (DUI).
And for your own good and the safety of other road users, just don’t drink and drive. If you do, you’re risking your life (and that of others) and attracting higher insurance rates.
2. Your Credit Score
Your credit score is a major rating factor not only for insurance firms but also financial institutions. Drivers with poor credit scores are considered high risk compared to motorists with good credit scores.
According to the Federal Trade Commission (PDF), drivers with bad credit file more insurance claims than drivers with good credit scores. The FTC also adds that when drivers with poor credit make claims, they are usually more expensive that claims made by drivers with better credit.
Insurance companies take your credit score into account when determining your premiums. The better the credit score, the lower the insurance rates. If you have a nasty credit, you can expect unfavorable premiums.
What to do? Start paying off your credit card debts, bills and other loans on time. And even though it might take time depending on how your finances are set up, you’ll reap many benefits later. With a better credit score (i.e. above 580), you can save over $1500 per year (or $130 per month) on your car insurance.
3. Coverage Limits
A coverage limit or liability limit is the maximum amount your car insurance company agrees to pay in the event of an accident or injury to a single person. It is defined in three number, for example 15/30/10.
What that coverage limit means is, in case you cause an accident, your insurance company will pay $15,000 per person for injuries, $30,000 per accident for injuries, and $10,000 for damages to the vehicle.
It goes without saying that the more coverage you carry, the higher your premiums will be. Keep in mind there are many types of coverages include, but not limited to, comprehensive coverage, collision coverage and extended coverage.
Work with a trusted insurance agent to work out coverage limits that work for your pocket. Remember, the more coverage you pile on your policy, the more you’ll pay. Consider other options such as an emergency health fund as well.
4. Type of Vehicle
If you had no idea, the type of vehicle you drive can affect your auto insurance rates. Unknown to many motorists especially brand-new drivers, there are several car-related factors that insurance companies consider when calculating your premiums.
For starters, insurers will use your car’s safety rating. If your car has a high safety rating, meaning there’s a lower chance of paying for your or your passenger’s medical bills, you will enjoy more favorable rates and vice-versa.
For this very reason, invest in safety features such as traction control, lane departure warning, automatic emergency braking, seat belts, and airbags among others. A safe car wins you lower rates with insurance companies.
Secondly, the age and type of your car can affect your insurance rates favorably or unfavorably. For instance, a brand-new sports car with all the bells and whistles attracts higher premiums than a used Honda Civic. Why? Because the insurer will pay more to repair or replace your sports car in case you wreck it.
Thirdly, there are some car models that thieves can’t get enough of. Now, if you own such a vehicle, insurance companies will hit you with higher premiums. However, installing anti-theft features can help you lower your insurance rates.
Where you live has a direct correlation with the premiums your insurance company will charge. You might not like it, but insurance firms use the city or state where you live (and drive) to determine your auto insurance rates.
It all comes down to factors such as crime rate, population, laws and natural mishaps. Need more details? Of course, you do
Firstly, ZIP codes prone to crimes such as car theft or vandalism attract higher insurance premiums than relatively safer ZIP codes. If you live in a neighborhood with high car theft rates, you can expect to pay higher auto insurance rates.
Secondly, do you live in a highly populated city? If that’s a yes, insurers will slap you with higher premiums since you’re more likely to be involved in an accident than, say, the guy who lives in the countryside.
Thirdly, some states have laws that pass the cost of coverage to insurance companies. For instance, Michigan requires all motorists to carry unlimited Personal Injury Protection (PIP) coverage by law. As such, annual car insurance in Michigan is over $2000 more expensive than in Ohio.
Lastly, insurance companies adjust premiums upwards in areas that are susceptible to natural disasters such as wildfires, floods, earthquakes, storms and tsunamis, among others. It is just what it is, but at least, they do their homework understanding the neighborhood more than you do.
6. Insurance Company
While all the other factors in this article determine how much you pay for car insurance, your insurance company could be running your coffers dry simply because they are expensive. There are many insurance companies out there, each with a different pricing structure.
This is, in my opinion, the biggest factor in determining car insurance rates. Your auto insurance policy could be costing you an arm and a leg simply because you went with the wrong insurance firm to begin with.
If your auto insurance rates are suffocating you, perhaps it’s time to consider shopping for a new insurance company. Take your search online and compare as many insurance quotes as you can at your convenience.
7. Driving Experience
This is one of the simplest factors that insurers use to determine your rates. If you have many years of driving experience under the belt, you’re less likely to make mistakes that lead to claims.
To insurance firms, that means you’re a less risky client. Therefore, the insurance company you decide to go with is more likely to offer you better terms keeping other factors constant.
What to do as a new driver? There are many ways of getting better insurance rates as a beginner driver, many of which we’ve already covered in this post. All in all, drivers with many years of experience enjoy better insurance rates than the new kids on the block.
This significant rating factor goes hand in hand with our previous point about experience. Teen drivers pay the most expensive insurance premiums. On the other hand, 50-year-old drivers pay the most affordable insurance rates. The difference in insurance costs between these two age groups hangs at around $5500 per year.
Why is this so?
According to research, teen drivers are reckless on the road, which means they get into more accidents than drivers in other age groups. As such, insurers consider teen drivers as risky and expensive clients, which translates to higher premiums.
Insurance companies also consider drivers over the age of 70 high risk, which – again – translates to higher premiums than drivers between the ages of 20 and 50.
Did you know you can reduce your auto insurance rates significantly by taking advantage of discounts? Auto insurance discounts depend largely on your individual rating scores, insurance company and location, among other factors.
Some companies might offer you great discounts if you pay your insurance premiums upfront, which can help you save a lot of money. For some other insurance firms, you might qualify for discounts if you’re a homeowner, have kids who are going to college, or uphold a clean driving record.
Some common discounts include multi-driver discount, affinity discount, multi-policy discount, green vehicle discount and anti-theft devices discount among others. Check with your insurance company for available discounts.
10. Education & Profession
You might not know this, but some professions and some level of education qualify you for better auto insurance rates. There are many insurance companies that offer discounts for having some college education regardless of age.
For others, their profession of choice almost automatically qualifies them for cheaper car insurance premiums. Workers such as nuns, insurance underwriters, paramedics and police officers receive great rates, since insurers view them as more careful than the average driver.
Other professions such as delivery drivers and journalists (who are constantly on the road hence prone to accidents), get the short end of the stick. Since they are riskier than, say, astronauts who just drive from home to NASA, they are slapped with higher rates.