Factors that affect car insurance rates
Not all insurance companies weigh their pricing factors in the same way. For example, the auto insurance quote you get at one company may be much cheaper at a different company for the same coverage. However, the following are the main factors in pricing equations:
Your driving record will follow you.
Your driving record includes your history of passing traffic violations and accidents resulting from the fault. The most significant factors to determining your car insurance rates. Auto insurance companies look at your driving history for the past three to five years, depending on your state. If you have been in a car accident or received traffic tickets, expect to pay more for car insurance.
You may have difficulty finding car insurance if you have a long history of fault accidents, traffic violations, and a DUI/DWI conviction. If the insurance companies refuse to cover you, you could end up with non-standard car insurance, which is insurance for “dangerous” drivers. Or, as a last resort, you will have to purchase car insurance from your state’s designated risk group.
But here is the good news: No matter your driving record, you can immediately work on improving it. Practicing safe driving habits and avoiding transgressions such as speeding violations and accidents will pay off. It may take few years, but the longer you drive without accidents, the better your car insurance rates will result.
Credit has traction
Many auto insurers make great use of credit-based insurance scores when setting rates. They maintain that credit predicts the likelihood of a claim being made.
Using credit-based insurance results for auto pricing is prohibited in California, Hawaii, Massachusetts, and Michigan.
Your coverage choices
The coverage you choose will have a significant impact on your car insurance rates. But don’t focus on the cheaper rates that make you skimp on the types of coverage you need.
For example, don’t just buy your state’s minimum requirements when you need comprehensive car insurance. Not having enough car insurance can be a recipe for financial disaster.
Here are some types of coverage:
- Car Liability Insurance: This is the basis of your car insurance policy and is required in most states. Car insurance pays others liability for injuries and property damage if you cause a car accident. It also pays for legal defense if you are sued for a car accident.
- Uninsured Drivers Insurance: This coverage is required in some states and optional in others. Uninsured driver coverage pays for your medical expenses if you are hit by someone who doesn’t have the liability insurance or does not have enough.
- Collision and Comprehensive Coverage: These are two types of optional coverage that are often sold together.
- Collision pays car repair bills if you get into a car accident. Comprehensive pays auto repair bills for theft, vandalism, animal collision, fire, flood, fallen objects, and hail. If you have the car loan or lease, you will likely be required to purchase collision and comprehensive insurance.
- Medical Expenses Coverage: This type varies by state but generally pays for your medical bills and other expenses (such as lost wages) if you are injured in a car accident. In some of the states, you may be required to purchase personal injury protection insurance.
Your auto insurance company may offer additional options such as:
- Accident Exemption: Some auto insurance companies “forgive” a faulty car accident. But you usually have to pay the extra for accident forgiveness, and there may be some restrictions, such as one amnesty per policy every three years.
- Gap Insurance: If you have the car loan, gap insurance pays the “gap” between what you owe on loan and the actual value of the car if it was pooled in an accident covered by your policy.
- Rental reimbursement insurance: This insurance pays for a rental car or alternative mode of transportation (such as a train or bus fare) if your vehicle is in the store due to the issue covered by a policy, such as a car accident. Rent reimbursement coverage is optional.
- Roadside Assistance Insurance: If your vehicle is malfunctioning, roadside assistance insurance pays for towing, battery starting, locksmiths, and flat tire repair.
Car insurance discount
The deductible amount will also affect your rates. The deductible is what you pay out of pocket if you file a claim for vehicle repair bills. You can usually choose deductible amounts ranging from $250 to $2,500.
Your car insurance history
If you’re a new driver and this is your first car insurance policy, you can expect to pay a higher price. That’s because auto insurance companies won’t have much information to assess the risks.
The “coverage gap” can also lead to higher auto insurance rates. This is a period when car insurance is not available. For example, if your car insurance company cancels you for non-payment or you are between cars, you do not have car insurance. The insurers see the coverage gap as a higher risk, which often translates to higher premiums.
If you do not have a car insurance but want to avoid the coverage gap (for example, if you’re between cars), non-owner auto insurance is a good option for maintaining ongoing auto insurance coverage.
The type of car you drive
The car you drive is also vital in determining your car insurance rates. They will look at past claims from similar models and evaluate repair costs, theft rates, and upfront payments for blanket claims.
Age and driving experience
Young and inexperienced drivers pay higher car insurance rates because they pose a higher risk of car accidents. For example, drivers between the ages of 16 and 19 are three times more likely to be involved in the fatal accident than drivers over the age of 20, according to the Insurance Institute for Highway Safety.
Your zip Code
Location-driven pricing factors include weather claims (such as hail), accidents, and auto theft. The Drivers in urban areas tend to pay more for coverage than those in the suburbs due to higher theft rates, vandalism, and car accidents.
The other location-related factors include the cost of medical care, vehicle repair costs, and the frequency of car accident claims.