Eight Things that Impact the Cost of Auto Insurance  

From a driver’s perspective, understanding how car insurance companies set prices can be puzzling. Auto insurance companies use multiple pricing factors to determine your risk, meaning how likely it will be that you’ll file a car insurance claim. The lower your perceived risk, the better your car insurance rates.

Factors That Affect Your Car Insurance Rates

Not all insurance companies weigh pricing factors the same. A car insurance quote you get at one company might be significantly cheaper at a different company for the exact same coverage. Here are the main factors in the pricing formulas:

• Driving Record
• Credit History
• Coverage Selections
• Deductible Amount
• Car Insurance History
• Car Make and Model
• Age and Driving Experience
• ZIP Code

Your Driving Record Will Follow You

Your driving record includes your history of moving traffic violations and at-fault accidents. It’s one of the biggest factors that determine your car insurance rates. Car insurance companies look at your driving history for the past three to five years, depending on your state. If you have caused a car accident or received traffic tickets, expect to pay more for car insurance.

If you have an extensive history of at-fault accidents, traffic violations, and/or a DUI/DWI conviction, you might have a tough time finding car insurance. If insurance companies deny you coverage, you may end up with non-standard car insurance, which is for “risky” drivers. Or as a last resort, you’ll have to buy car insurance from your state’s assigned risk pool.

But here’s the good news: No matter what’s on your driving history, you can immediately work to improve it. Practicing safe driving habits and avoiding transgressions like speeding tickets and accidents will pay off. It may take a few years, but the longer you drive without any incidents will result in better car insurance rates.

Credit Has Traction

Many auto insurance companies make heavy use of credit-based insurance scores when setting rates. They contend that credit predicts the likelihood that you’ll make a claim.

The use of credit-based insurance scores for car insurance pricing is banned in California, Hawaii, Massachusetts, and Michigan.

Your Coverage Selections

The coverage you choose will have a major impact on your car insurance prices. But don’t be so focused on cheaper prices that you skimp out on the coverage types that you actually need.

For example, don’t only buy the state’s minimum requirements when you need full coverage car insurance. Not having enough car insurance could be a recipe for financial disaster.

Here are some coverage types:

• Liability car insurance: This is the foundation of your car insurance policy and is required in most states. Liability car insurance pays others for injuries and property damage if you cause a car crash. It also pays for a legal defense in case you are sued because of a car accident.
• Uninsured motorist insurance: This coverage is required in some states and optional in others. Uninsured motorist coverage pays for your own medical expenses if you are hit by someone who doesn’t carry liability insurance or doesn’t have enough.
• Collision and comprehensive coverage: These are two separate optional coverage types that are often sold together.
• Collision pays for car repair bills if you get into a car accident. Comprehensive pays for car repair bills for theft, vandalism, collisions with animals, fire, floods, falling objects, and hail. If you have a car loan or lease, you’ll likely be required to buy collision and comprehensive insurance.
• Medical expense coverage: This type varies by state, but generally pays for your medical bills and other expenses (like lost wages) if you are injured in a car accident. In some states, you may be required to buy personal injury protection insurance.

Your Car Insurance History

If you are a new driver and this is your first car insurance policy, you can expect to pay a higher rate. That’s because car insurance companies won’t have much information to evaluate your risk.

A “coverage gap” can also cause higher rates when you buy auto insurance. This is a period of time when you don’t have car insurance. For example, if your car insurance company canceled you for non-payment or you were between cars and didn’t have auto insurance. Insurers see the coverage gap as a higher risk, which often translates to higher insurance premiums.

The Type of Car You Drive

The type of car you drive also plays a significant role in setting your car insurance rates. They’ll look at past claims from similar models and evaluate repair costs, theft rates, and payments made for comprehensive claims.

Age and Driving Experience

Young and inexperienced drivers will pay higher car insurance rates because they pose a higher risk for car accidents. For example, drivers between the ages of 16 and 19 are three times more likely to be involved in a fatal crash than drivers over the age of 20, according to the Insurance Institute for Highway Safety.

Your ZIP Code

Pricing factors driven by location include weather claims (such as hail), accidents, and car theft. Drivers who live in metropolitan areas tend to pay more for coverage than those who live in suburbia due to higher rates of theft, vandalism, and car accidents.