In this article:
- 1. Your Location
- 2. Your Demographics
- 3. Your Vehicle
- 4. Your Insurance Coverage
- 5. Your Deductible
- 6. Your Vehicle Usage
- 7. Your Driving Record
- 8. Your Insurance Coverage and Claims History
- 9. Your Eligibility for Discounts
- 10. Your Insurance Company
- 11. Your Credit Score
- You Can Keep Car Insurance Costs Down
Having more money in your bank account is always a good thing, and saving on your car insurance premium can help you do it. But what do car insurance companies consider when they're calculating your insurance premiums? Understanding the factors that go into setting the price of car insurance can help you get the best rates possible. Here are 11 factors that affect your car insurance costs and how they can help you reduce your premiums.
1. Your Location
There are a couple of factors affecting your car insurance that you can't do much about. One is where you live. Insurance premiums vary from state to state, and even within states, insurers will consider your ZIP code. Drivers in some areas have a greater chance of accidents, car theft, or other risks than others.
2. Your Demographics
Your age, gender and marital status all can affect your car insurance premiums. What you do for a living and whether you own a home may matter too. Insurance companies have found that people with certain characteristics are less risky to insure than others, and in turn may offer them a lower rate. Unless you're willing to get married, move to a new city and switch jobs in the pursuit of lower car insurance premiums, demographics aren't really something you can change.
3. Your Vehicle
The car you drive is a major factor in your insurance costs. More expensive cars generally cost more to insure simply because they cost more to replace or repair. In addition, some vehicles are more popular with car thieves, more prone to damage than others or require costlier repairs if damaged due to hard-to-find parts or exotic construction materials; driving one of these cars can mean higher premiums.
If you're in the market for a new car, compare insurance rates for the models you're considering. You could save some money by opting for a vehicle that costs less to insure. Cars that have safety features such as anti-lock brakes or anti-theft devices may also qualify for lower insurance premiums. For example, GEICO offers premium discounts for cars with anti-theft features such as immobilizers or location-tracking devices.
4. Your Insurance Coverage
The amount of insurance coverage you purchase will affect your premiums. In general, the more coverage you get, the more you'll pay. A basic auto insurance package generally includes liability coverage to protect you, as well as collision and comprehensive coverage to protect the vehicle. Assuming you've purchased the minimum car insurance coverage that your state and lender require, you can pick and choose the amount and type of insurance you want. This gives you a lot of leeway to lower costs.
If you have an older car that's not worth very much, for instance, you may be able to save some money by reducing or eliminating collision and comprehensive insurance coverage. If an older vehicle is totaled in an accident, this coverage may not pay out enough money to justify its cost. Instead, you can use money saved on collision and comprehensive coverage to start saving for your next car. You can also save some cash by eliminating extra coverage, such as roadside assistance or reimbursement for rental cars, that you don't need.
5. Your Deductible
When you file a car insurance claim, the deductible is the amount you must pay before the insurer's coverage kicks in. Raising your deductible—for example, from $500 to $1,000—can trim your premiums because you're taking on more of the financial burden if a claim occurs. Just make sure that your budget can handle the higher deductible. However, you may not see enough of a premium reduction to make this plan worth it.
6. Your Vehicle Usage
Since drivers who log more miles are statistically more likely to be involved in accidents, the amount you drive is another factor in your auto insurance rates. If you drive fewer than 12,000 miles a year, you may qualify for reduced rates. Some insurers even offer pay-per-mile auto insurance where you pay a base amount monthly, plus a per-mile charge for each additional mile driven.
7. Your Driving Record
Driving safely helps reduce the risk that you'll be involved in an accident, and insurers will carefully examine your driving record when calculating your insurance rates. A record of moving violations, particularly for speeding, DUI, reckless driving or other unsafe behavior, will result in higher premiums. The more recent your offenses are, the bigger effect they will have on the price of your insurance.
Being involved in an accident can mean higher premiums, too, especially if you were found to be at fault. If you've had an accident while under the influence of drugs or alcohol, you can expect steep premiums, and you may have difficulty getting insurance at all.
To lower your insurance costs, make a habit of driving safely to avoid accidents and citations. Allstate gives you a discount if you've been accident-free for three years or more, or if you go three years with no at-fault accidents or moving violations.
Esurance is one of several insurers that use apps to track how you drive. The apps monitor behavior such as speeding or sudden braking to confirm that you're driving safely. Root Insurance goes a step further, using an app to assess your driving during a "test period" and basing your premiums on what the test reveals.
8. Your Insurance Coverage and Claims History
If you've ever gone without auto insurance for a period of time, insurers may charge you more for car insurance. Your history of claims is also a factor in the cost of your insurance. If you've filed a lot of insurance claims, the reasoning goes, you'll probably continue doing so. To protect themselves, insurers will charge you more.
Maintaining auto insurance with no gaps in coverage can help reduce your premiums. You should also assess your options before making an insurance claim. Of course, you should always file a claim if another party is involved. However, smaller incidents, such as backing into a tree and damaging your bumper, might be better handled yourself instead of filing a claim that could lead to a rate hike.
9. Your Eligibility for Discounts
Auto insurance companies offer discounts for all sorts of reasons. You might get a discount for going a certain number of years without an accident or claim. Buying more than one insurance policy from the same company (known as "bundling") usually qualifies you for discounts; so does insuring more than one vehicle.
Carriers may offer teens or seniors discounts based on their age or for taking driver safety courses; some companies, such as AAA, give students discounts for maintaining a grade point average of 3.0 or higher. Employers and organizations often offer car insurance discounts for their employees or members, so check with your boss and with groups you belong to. Farmers Insurance even gives discounts for alternative fuel vehicles.
10. Your Insurance Company
Since different insurers may charge different rates for the same amount and type of coverage, shopping around can mean big savings. You can easily get quotes online from a variety of insurers to compare. In fact, some insurance carriers, such as Progressive and Liberty Mutual, even give you discounts for getting quotes online.
Don't just go with the cheapest provider, however. If you ever have a claim, you'll want an insurance carrier that's reliable and easy to work with. Before you apply for insurance, do some research into how well the company is rated and what their customers think of their service.
11. Your Credit Score
Outside of California, Hawaii, Massachusetts and Michigan, where the practice is restricted, insurance companies can use your credit as a factor when calculating your premiums. Although the credit-based insurance score they'll use is different from the scores lenders use, such as your FICO® Score☉ , it typically considers similar factors, including account balances and payment history. A good score may qualify you for lower insurance premiums. That's why it's a good idea to check your credit score before you get serious about looking for car insurance. Find out more about how your car insurance may be impacted by your credit score.
If you find that your credit score could stand some improvement, there are some easy steps you can take to help it. Start by paying every bill on time, paying down high credit card balances and reducing your overall debt. Experian Boost®ø, a free service that can add your utility, cellphone and video streaming payments in your credit report, can also help give your credit score an instant lift.
You Can Keep Car Insurance Costs Down
There are some factors affecting your car insurance costs that you can't control, but plenty of others that you can. By understanding what car insurance companies consider when setting your premiums, you can make yourself a more desirable customer and get the insurance coverage you need for the best possible rate.
Learn More About Factors that Will Determine Your Car Insurance Rate
- Which Companies Offer the Best Auto Insurance Rates?
Auto insurance companies base your rates on a variety of factors, so the best car insurance provider can vary from person to person. Here’s what to know.
- Do Auto Insurance Companies Consider Your Credit Score?
Auto insurance companies might consider a credit-based insurance score when considering insurance applications.
- How Does a Car Insurance Deductible Work?
The deductible on your car insurance policy is the amount you pay out of pocket if you file a claim for certain types of coverage. Here’s what you need...
- Do New Cars Cost More To Insure?
It may cost more to insure a new car depending on factors such as the type of vehicle, the amount of coverage you choose and your driving record.
- Top Car Insurance Discounts
Car insurance can be expensive, but there are plenty of ways to save. Here are 18 car insurance discounts that can lower your premiums.
- The 10 Most Expensive States for Car Insurance
The cost of premiums can vary widely, not only from person to person, but also much more broadly, such as which state you drive.
- The 10 Cheapest States for Car Insurance
Drivers in the five states with the highest average annual premiums pay about twice that of the five least expensive auto premium states to insure their rides.
- What Is Full Coverage Car Insurance?
Full coverage auto insurance combines different policies to get the best overall protection for your car, its drivers and others who may be affected.
- How a Car Accident Can Impact Your Car Insurance Rate
Getting in an accident that you caused could have an impact on your car insurance rates. Here’s what you need to know about the process.
- How to Get Car Insurance After a DUI
An impaired-driving conviction may not keep you from getting auto insurance, but coverage will cost more—maybe a lot more—for several years afterward.