Auto Insurance Basics

Factors that Affect Auto Insurance Rates

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Similar to how no two snowflakes are exactly the same, no two insurance quotes are identical. Insurance policies have to be personalized because no two drivers are the same, and therefore no two policies cost the same. A car insurance company determines the cost of a driver's policy based on its assessment of his or her risk to the company. In other words, the more likely you are to get into an accident and use your coverage, the higher risk you are. Auto insurance quotes may seem like a confusing mixture of different factors, but in truth much of your auto insurance quote is a reflection of your own actions and choices as a driver such as the type of vehicle you own, your driving history, the location where you park your car, and more. Of course, factors such as your age and gender that impact your quote are out of your control. Here are the major factors that determine most of your auto insurance cost:

Where You Live & Park

If you regularly park your car in a zip code notorious for auto theft, you could see higher auto insurance quotes (compared to garaging it elsewhere). The same way auto insurers raise premiums for drivers who own cars that are commonly stolen, they raise premiums for drivers who park their cars in an unsafe place. By parking your car in a garage or on the street of a dangerous neighborhood, your car is at higher risk for theft, and insurers will raise the price of your quote accordingly. Note that while you may not be able to help where you live and work, measures such as parking the vehicle inside a closed garage rather than open streets can still lower your risk assessment by insurers.

How Old You Are

All else equal, age makes a huge difference in insurance costs, especially when you are less than 25 years old. The way age impacts your quote is entirely out of your control. It makes sense that a quote would differ for a recently licensed 17 year-old and a 40 year-old who has been driving for 20 years; the 17 year-old is more costly to insure due to lack of experience and statistically higher damages in and incidents of accidents. This factor works against young drivers, but works for older drivers. Note that once you enter your senior phase (65+), however, insurers start factoring in things like reflex ability, and move rates a bit to reflect this.

Your Gender

Gender is shown to be correlated with the risk of car accidents, especially at younger ages and levels of driving experience. Statistics from the Insurance Institute of Highway Safety (IIHS) show that men are more likely to speed and drive under the influence, and that more men than women die in fatal car accidents. Once drivers pass your mid-20s and head into their 30s, however, the differences between genders narrows.

Whether You're Married or Single

The first thing that comes to mind when you tie the knot might not be your auto insurance premium, but it actually can have an effect on your quote price. From past statistics, insurers believe that a married driver is more responsible, and therefore less likely to be in an accident than a single driver. However, note that if you combine insurance policies with your spouse who has a not-so-clean driving record, the picture gets murkier, and your quote price could increase.

Your Past Driving Record

Your driving record is an important indicator of how safe of a driver you are to the insurer, especially the immediate past 3 - 5 years. If you’ve never received a ticket or gotten in an accident, your insurance company may assume you are a safe driver, which will earn you lower rates. If you’ve received a ticket and have been at-fault for an accident, your insurer has reason to believe that you are riskier to insure and thus charge you higher premiums. Drivers convicted of a DUI could see their rates increase 36%, based on an analysis of rates before and after a DUI.

How Much Coverage You Buy

A huge price factor for the quote you receive is the coverage you select. A car insurance policy is made up of several different coverages, and while your state regulation always requires you to buy a few, there are yet more you may choose to add on for more comprehensive protection. If you want the minimum coverage required by your state, your quote will be less expensive than it would be if you wanted higher limits of liability with added comprehensive and collision coverage. In exchange for a lower premium, you’ll have less protection and be more exposed. Vice versa. Either you pay higher premiums, or you sacrifice protection. Should you be the cause of an expensive accident, your insurer will only pay out up to the limits you purchase, and your assets will be on the hook for the remaining damages in a lawsuit.

The Vehicle You Drive

The type and age of the car you drive could have an effect on your car insurance rates. For example, certain cars such as SUVs are cheaper to insure than sedans. If you drive a new, moderate car with safety features, you’ll be eligible for lower premiums and discounts. Driving an older car, or a car that is commonly involved in collisions or stolen, could lead to higher premiums. If you drive an older car, your premium will be higher because there’s a greater chance that your vehicle could break down or be stolen and sold for parts. 

Annual Mileage & Usage

Past statistics have shown that the more you drive your car, the more likely you are to get into an accident. Insurers will use your annual mileage to determine your risk of a traffic violation or collision. If you don’t drive many miles per year (less than 7,500 miles), or if your daily commute is less than 10 miles one way, you could be eligible for discounts like Low Mileage discount.

Similarly, someone who uses their car for commuting can be deemed higher risk compared to someone who uses their car for leisure. You're potentially on the road more regularly, say five times a week, or in rush hour conditions where more cars are present for accidents to happen. On the other hand, a motorist who uses their car just for pleasure uses it for a handful of times, and their car is likely to be garaged for the most part and away from roads where car crashes or fender benders can happen.

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