What determines the cost of my car insurance?
There are over a dozen factors that go into determining your car insurance rates. While each company will have their own list of factors and their own formula for assessing risk, there are a few standard factors that you can expect to be taken into account no matter where you’re shopping for auto insurance.
Here’s a breakdown of the big factors that determine your car insurance rates:
Your driving record
Typically, car insurance companies look back at about five years of driving history when determining your rates. You can see what they see by ordering your Motor Vehicle Report (MVR) from your state’s driver’s license agency. Each state’s DMV will have their own fees for ordering an MVR, but it should be relatively cheap. Contact your local DMV office for more details.
If you’ve got a clean driving record, you’re seen as less of a risk. If you’re one moving violation from having your license revoked, you’re seen as a big risk. Low risk, lower rates. High risk, higher rates. It’s pretty straightforward.
The kind of coverage you want (and how much you want)
In states that mandate car insurance coverage, you’ll need to purchase a minimum amount of coverage. Coverage includes:
- Liability insurance. Reimburses the victim in a car accident when a driver is liable for bodily injury or property damage.
- Personal injury protection. Pays your medical bills and those of your passengers when you’re in an accident.
- Collision insurance. Pays for damage to your car incurred in a collision. Optional unless your car is leased or purchased with a car loan.
- Comprehensive insurance. Pays for damage to your car or the theft of your car when it’s parked somewhere. Optional unless your car is leased or purchased with a car loan.
- Uninsured/underinsured motorist insurance. Pays the difference when the other party is at fault but he or she doesn’t have insurance or his or her insurance doesn’t cover enough of your resulting medical or repair bills. Optional unless your car is leased or purchased with a car loan.
- Gap insurance. When your car is stolen or wrecked beyond repair, gap insurance pays for the difference between how much the car’s value has depreciated and how much you owe on the car loan or lease. Depending on lienholder, it may be optional.
Beyond what your state requires as a minimum, you can purchase more or less coverage in each auto insurance component, although your premiums will increase the more coverage you add on and decrease if you purchase less coverage. Get a free quote from Policygenius, and one of our agents can help you find a car insurance policy that not only fits your needs but also won’t break the bank.
A young driver may turn out to be the best driver ever, but they’re also less experienced behind the wheel and, therefore, more likely to get into an accident. The general rule of thumb is that your car insurance rates will start to drop once you reach the age of 25 — but only if you’ve got the track record to prove it.
Your age affects your car insurance premiums throughout your entire driving life. In fact, 20-year-old drivers may pay twice as much for car insurance than drivers closer to age 29 or 30, and car insurance companies consider the prime age target to be between 45 and 55 years old.
Other car insurance companies increase rates during that time — make sure you get new quotes whenever you feel like your rates could be lower. However, after age 55, your rates will probably plateau until around age 65, when they'll start rising again.
Gender & marital status
Blame statistics, which show men and single people are more likely to get into an accident. This increased risk to the car insurance company means if you’re unmarried or male, you’ll pay higher insurance premiums.
How far your drive
The more time spent on the road, the higher the chance that you’ll get into an accident. You’ll pay more for the added risk.
Drive an expensive car? Well, then, comprehensive and collision coverage is going to cost more. On the less obvious side, some insurers also consider the car’s history on the road, though that doesn’t necessarily mean buying a “safer” car will lower your car insurance rates.
Insurers generally look at some version of your credit score (it’s considered a metric of responsibility) and the better it is, the lower your rates could be. Some states prohibit auto insurance companies from using a credit score to determine your rates.
Do a lot of accidents happen in your neighborhood? What about car thefts or vandalism? Unfortunately, that means you’ll pay higher rates than someone who lives in a less risky neighborhood. (That’s because insurance only works if everyone pools their risk together.) The same thing happens to renters insurance and home insurance rates for the same reason.
Does filing a claim increase your premiums?
Filing a claim can raise your premiums. You should always file if you’re at fault in an accident, but be prepared to pay a higher premium as a result, which could be as high as nearly 50% of your current premiums. The insurance company does this to reduce its risk and make sure you don’t repeatedly get into accidents.
If the loss you suffered isn’t particularly bad, you may want to consider not filing a claim. The increased premiums you see after filing can stay for months and may eventually become more expensive than the loss in the first place.