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Determining Your Premium

When looking at car insurance quotes online, many people just see a bunch of numbers, not knowing how the insurance company came up with them. Extensive studies by the U.S. Department of Transportation, state departments of transportation, and third party organizations such as the Insurance Research Council continue to be conducted to determine how to rate a driver’s insurability, which influences the prices of premiums per individual. But what exactly does an insurance company look at when determining what your premium will be, and how does each of these factor into the final price?

  • Age and Gender.

    Insurance companies view 25 as a pivotal age. Studies have shown that on average, individuals younger than 25 are involved in more accidents than any other age group. This makes them a higher risk to insure, resulting in higher premiums. Likewise, studies have shown that males are involved in more accidents than females, resulting in higher premiums for men.

  • Marital Status.

    Studies have also shown that on average, married people have fewer accidents and are more financially responsible than single people. Therefore, single people may have to pay higher premiums for their auto insurance.

  • Location.

    Insurance policies such as comprehensive and collision will cover your vehicle when it is damaged, vandalized, or stolen, so they will assess the area you live in when determining what you are going to have to pay to be insured. Areas that have a high frequency of traffic accidents are considered hazardous. To compensate for the increased likelihood of having a collision, the drivers who live in these areas have to pay higher premiums. Also, those living in areas with a high crime rate will have higher premiums due to the increased chances of their vehicles getting stolen or vandalized.

  • Driving Record.

    Insurance companies will look at your driving record to see what kind of driver you are, determine how much of a risk you are to insure, and then use the information to help determine your premium. A good driving record can keep your insurance premium low, whereas a record full of accidents, insurance claims, and other infractions can raise your premium because you will be considered a higher risk.

  • Credit Score.

    If you have to file an insurance claim, your insurance provider will potentially have to pay thousands of dollars to cover your damages, so they want to make sure you’re going to be able to make your payments to them. They look at your credit score to see how financially responsible you are and determine the likelihood that you will be able to pay them. A high credit score can result in lower premiums, whereas a low score can result in higher premiums.

  • Vehicle Type.

    What kind of vehicle you want to insure will affect your premium for multiple reasons. There are certain vehicles that tend to get stolen more than others, making them more of a risk to insure. High-performance vehicles are more likely to be involved in an accident, resulting in higher insurance premiums. In addition, certain vehicles cost more to repair, which your insurance company will have to pay for, so your premium will be higher as a result.

  • Vehicle Use.

    Some insurance companies will look into how you use your vehicle when determining your premium. Long commutes and driving frequently increase your chances of having an accident, which in turn will raise your premium. Also, parking your vehicle in a secure location, such as a garage, will lessen the risk of theft and damage to your vehicle, which can lower your premium.

  • Your Coverage.

    Many insurance companies will consider what kind of coverage you have, and factor this information into your price. For example, you may receive a lower auto insurance premium if you also have homeowner’s insurance with the same company. The deductible on your policy will affect your premium as well. In most cases, the higher the deductible is, the lower the premium will be, and vice versa.

    But what won’t affect your premium, and what doesn’t car insurance cover? Rumors can float around and become myths, which eventually become perceived as facts. The car insurance world is not immune to this occurrence. These are a few things that people assume to be true about car insurance, but which in reality are in fact myths.

  • Red vehicles have higher premiums.

    Many people believe that if you have a red car, you’ll have to pay a higher insurance premium than if you have a car in any other color. Well, according to an MSNBC report, there is no factual evidence to show this to be true, and insurance companies don’t even ask about the color of your vehicle.

  • A single speeding ticket will greatly increase your premium.

    In most cases, your premium will not be affected by a single speeding ticket, according to Progressive Insurance. Although, if you get a second ticket, you may see a premium increase then.

  • The state-required amount of insurance is enough.

    Sure, the state’s minimum requirement is all you need to abide by the law, but many people think any coverage that goes beyond this is unnecessary. However, the costs you accrue from a serious accident may exceed your minimum coverage, leaving you to pay the difference. A Business Insider report states that the Insurance Information Institute recommends at least $300,000 coverage per accident, which is much more than most states’ minimum requirements.

  • If a friend drives your vehicle and crashes, your friend’s insurance will cover it.

    Unfortunately, this is not true. A Chicago Tribune article states that auto insurance covers the vehicle, regardless of who is driving it, meaning your insurance will have to cover the damage your friend caused to your vehicle. So, be selective when allowing your friends to drive your vehicle.