June 23, 2024
Factors that impact your cost of car insurance

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Your vehicle type, motor vehicle record and previous claims history are a few factors that determine car insurance rates.

The type of vehicle you drive, how frequently you drive and the coverage you choose also makes a difference.

Asking about discounts, bundling policies and only filing claims when necessary are ways to potentially save on car insurance.

Car insurance is a necessary expense for every driver — but the size of that expense is different for everyone. That’s because car insurance companies use a complex set of calculations to evaluate the risk each driver presents based on the traits they share with other drivers, such as age (in most states), driving record and location. Your unique risk profile — and the price of your auto insurance — are based on these risk calculations. Understanding the risk factors that insurance companies use to price insurance can help you learn how to get cheaper car insurance.

 

What factors affect car insurance rates?

Your driving history is a significant determining factor in calculating your car insurance premium. Length of driving experience, prior insurance, driving record and claims history are specific to you and are a part of your risk assessment when getting a car insurance quote. Other factors like location, age, gender and annual mileage impact your policy rate, but an increase in incidents from other drivers in the same risk group as you can also impact your rates. For example, if the rate of accidents in your ZIP code increases, the rate of your car insurance premium can also increase at renewal, even if you don’t file a claim. It should be noted, though, that not all factors are allowed to be considered in all states.

 

Driving record

Drivers with clean motor vehicle records and no at-fault accidents typically get the cheapest car insurance. An at-fault accident will usually cause rates to increase more than a speeding ticket conviction. But if you have a severe infraction, like a DUI conviction, you can expect your rates to increase substantially. For some high-risk drivers, especially those with a DUI conviction or multiple convictions and accidents in a short window, some insurers may deny coverage. These drivers may need to find high-risk car insurance or seek out coverage through nonstandard car insurance companies or state-backed high-risk pools.

 

Average annual full coverage premium

Clean driving record $2,314

Speeding ticket conviction $2,082

Accident $3,283

DUI conviction $4,408

Prior insurance

Prior insurance shows that you have continually maintained insurance, which is a sign of responsible behavior that can indicate you are a lower risk to insurance providers. Levi A. Kastner, owner-agent of Kastner Insurance Group in Lafayette, Louisiana, explains: “Insurance companies use many data points to figure out rates, and one of those data points that is heavily relied upon is ‘do you have a current insurance policy in place?’ Insurance companies prefer to do business with clients that handle their business because statistically, if you take care of your business, like not letting your insurance policy lapse, they see that as a favorable trait in clients they want.”

 

However, if you have had a lapse in coverage, it could work against you. Some insurance providers may charge you more to cover the additional risk.

 

Credit history

Your credit history is important for more than just a car loan; it could also be an influencing factor when you apply for car insurance. Although insurance companies don’t use your direct credit score, they may reference what is called a credit-based insurance score. Statistically, people with lower credit scores are more likely to file claims than those with higher credit scores. Insurance companies deem drivers with lower credit scores as higher risk and usually apply higher premiums as a result.

 

However, this is a controversial topic as there are concerns as to whether credit scoring models are fair and equitable to everyone. Some states do not allow the use of your credit history when calculating car insurance rates: California, Hawaii, Michigan and Massachusetts.

 

For drivers in states where credit is used, working to improve your credit score is one way to potentially lower your car insurance rate.

 

Average annual full coverage car insurance premiums by credit rating

Poor Average Good Excellent

National average $4,063 $2,520 $2,314 $2,013

Location

Every aspect of your location could play a role in determining your premium, including your city and even your ZIP code. Since each state has different minimum car insurance requirements for drivers, car insurance rates vary depending on your location. 12 states require personal injury protection (PIP) coverage, which can significantly impact the cost of car insurance, while other states have optional medical payment coverage options.

 

Your garaging ZIP code provides details of population size, accident frequency, theft and vandalism in your area. However, it is important to note that, in California and Michigan, car insurance companies are not allowed to use your ZIP code to determine your rates, along with several other non-driving insurance factors.

 

Those who live in severe weather areas may also face higher premiums due to related causes of loss. For example, the National Insurance Crime Bureau (NCIB) reports that more than 422,000 insured vehicles were damaged by Hurricane Harvey in 2017, about 300,000 claims after Hurricane Katrina in 2005 and 250,500 claims following Superstorm Sandy in 2012.

 

 

Average annual cost of car insurance by state

Age and gender

Depending on the state, your rates will likely increase and decrease based solely on your age or length of driving experience. Teen drivers are more likely to be involved in crashes as a result of inexperience and risky habits. At the other end of the spectrum, drivers over the age of 70 have higher crash rates than middle-aged drivers — although still not as many as young drivers.

 

Gender also plays a factor in calculating car insurance rates in many states. According to the Insurance Institute for Highway Safety (IIHS), male drivers are more likely to speed, drive while impaired and skip wearing their seatbelts, which may explain the trend toward higher premiums. The total number of vehicle deaths for males was more than double compared to females every single year between 1975 and 2020.

 

However, data from recent years shows this disparity among genders is narrowing, a trend greatly attributed to the increase in vehicle safety features. Crash statistics show that every decade, the newer vehicle models reduce deaths for both genders. In fact, since 1975, death rates have decreased 14 percent for males and 10 percent for females.

 

The following states do not allow the use of gender as a determining factor in calculating premiums: California, Hawaii, Massachusetts, Michigan, North Carolina and Pennsylvania.

 

Vehicle

While new vehicles often cost more to insure than older ones, it is not always that simple. Newer cars tend to have more technology, and this tech can have higher replacement part costs, require special mechanics and demand more labor time. However, if your new car has additional safety features, cheaper parts or is driven by a low-risk driver, it may be less expensive to insure than your older-year car.

 

In addition to model year, engine size and horsepower also plays a role, along with your vehicle’s safety ratings. If you know a vehicle’s make and model, you may be able to better gauge what car insurance premiums you will see.

 

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