Overview
Car insurance is a legal requirement in every U.S. state, except New Hampshire. If you need to insure your car, you’re probably wondering how much you can expect to pay, and what factors will affect your premium.
Here’s the gist—car insurance premiums aren’t one-size-fits-all. Insurance companies consider lots of different factors to set your premium and determine how much you should pay. Ultimately, the cost of your car insurance policy comes down to risk.
Let’s say you’re a picture-perfect driver who’s never been in an accident. You’ll probably pay less than someone who just ran a stop sign and hit a car in the intersection. Or, if you live in New York City, you’ll most likely pay more than your friend who lives upstate in a tiny town.
If you’re in the market for car insurance, it’s helpful to understand what affects your premium. Some factors are out of your control, like your age, while others, like your deductible, are not.
Let’s go over some of the biggest factors that determine car insurance premiums. At the end, we’ll leave you with some tips for getting cheaper coverage.
Factors That Affect Your Car Insurance Premium
When you apply for a car insurance policy, the insurance company uses certain rating factors to determine how risky you (and your vehicle) will be to insure. Drivers that are considered high-risk—like those with a recent DUI conviction—typically pay higher rates than people with fewer risk factors.
Here’s a look at the main factors that can affect your car insurance premium.
Location
Where you live has a significant impact on the cost of car insurance. That includes your state, city, and even your ZIP code. Things like the population density, weather, crime, uninsured drivers, and claim frequency can contribute to your auto insurance premium. For this reason, car insurance tends to be cheaper in rural areas with fewer drivers and cars, and more expensive in urban areas with lots of people on the road.
Age and Gender
Car insurance companies strongly consider your age when calculating your car insurance premium. Teens and young drivers usually pay the most expensive premiums because they lack experience behind the wheel and have much higher accident rates than older drivers. Additionally, male drivers tend to pay slightly higher premiums than female drivers. That’s because data shows women have fewer serious accidents than men.
Credit Score
In most states, car insurance companies can use your credit score to determine your car insurance premium. Drivers with poor credit tend to pay more expensive premiums because statistics show that they’re more likely to file claims than people with good credit. The states that prohibit the use of credit-based insurance scores are Alabama, Delaware, Florida, Illinois, New Mexico, Oklahoma, Texas, Vermont, and Washington.
Claim History
Insurance companies check your insurance claim history to determine how much risk they’ll take on if they decide to insure you. If you’ve filed any car insurance claims within the last few years—even for incidents that weren’t your fault—you could pay a more expensive car insurance premium. However, claims don’t always have a huge impact on your premium. It depends on factors like the types of claims and the severity of the claims.
Driving Record
Your driving record is one of the biggest factors that will impact your auto insurance premium. If you have a clean record, with no recent speeding tickets, accidents, or other violations, you’ll probably get rewarded with a lower premium. On the other hand, if you have a messy driving record, you could pay a higher rate. The most serious violations, like driving under the influence or reckless driving, usually have the biggest impact on car insurance premiums.
Vehicle Type
Car insurance companies consider the type of vehicle you own when setting insurance rates. In general, it costs less to insure used cars that have already depreciated, and more to insure brand new vehicles, or luxury cars. Specifically, factors like the car’s value, repair costs, and safety ratings can impact rates. If you’re searching for a new vehicle, it’s a good idea to get car insurance quotes first so you have an idea of how much you might pay for insurance before choosing a specific model.
Deductible
Car insurance policies have a deductible, which is the amount of money you pay out-of-pocket when you file a claim. Policies with higher deductibles have lower premiums, whereas policies with lower deductibles have higher premiums. You get to choose your deductible when you purchase car insurance, and you can change it any time.
Policy Limits and Coverage Types
Liability-only car insurance with the state-mandated coverage limits is the cheapest policy you can legally get. If you purchase a full coverage policy (which is usually recommended), you’ll pay a higher premium. Your rate will also be more expensive if you choose high coverage limits or add optional endorsements, like roadside assistance or accident forgiveness.
5 Ways to Reduce Your Car Insurance Costs
Car insurance premiums can be expensive depending on factors like your location, age, and driving record. But there are ways to lower your premium. Here are five potential ways to reduce your car insurance costs:
Take advantage of discounts: Most insurance companies offer discounts that can help you save money on car insurance. When you’re researching insurers, look for ones that offer multiple discounts you’re eligible for.
Bundle your policies: You can typically save money when you bundle car insurance with another policy, like home insurance or renters insurance.
Take a defensive driving course: Many insurance companies offer a discount to drivers who complete an approved defensive driving course.
Raise your deductible: If you want to lower your car insurance premium, raising your deductible will help you save. But make sure to choose a deductible you can afford if you have to file a claim.
Shop around: Car insurance companies charge different rates for the same types and amounts of coverage. Shop around and compare quotes from multiple companies to see which insurer can offer you the lowest rate for your situation and coverage needs.
The Point
Car insurance premiums are different for everyone. Rates are based on things like your state, age, driving record, vehicle type, and even your credit score (depending on where you live). If you think you’re overpaying for car insurance, or if your premium just doesn’t work in your current budget, there are ways to save. One of the best things you can do is compare quotes from several insurers to see which one can offer you the cheapest rate for your situation.
by your friends at The Daily Navigator
