How are my car insurance rates determined?

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How are my car insurance rates determined?

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.

Your driving record

Obviously they’re going to look to see if you’re a good driver. Get into a fender bender every few months? Your rates will be higher than the guy down the street who’s never been in an accident.

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.

-> How are rates decided if you're a new driver?

Personal details: age, gender, marital status

Yep, your rates will change depending on your age, gender, and whether or not you’ve tied the knot. All of these are important because of statistics:

  • Statistically, younger people are more likely to be the cause of accidents.

  • Statistically, men are more likely to be the cause of accidents.

  • Statistically, people who are married get into less accidents.

Some people think this is unfair, and that car insurance companies shouldn’t be allowed to discriminate based on gender or age. But unless laws are put into place banning the practice, these factors are going to affect your rates. (Plus, women get dinged when it comes to life insurance and long-term disability insurance, so maybe it all evens out.)

Your zip code

Do a lot of accidents happen in your neighborhood? What about car thefts or vandalism? Bad news: your rates will probably go up. Yes, we know this has nothing to do with you as an individual, but part of the deal with insurance is that your premiums go to paying for everybody’s costs – you’re pooling risk, after all. The same thing happens to renters insurance and home insurance rates for exactly the same reason.

How far you drive

How many miles do you drive annually? Seriously, your insurance company wants to know. Obviously this will be a rough estimate, but you can think of it this way: are you using this car to commute to work every day, or just the occasional drive, or are taking it cross-country to follow the Grateful Dead? The more you use it, and the more miles you drive, the more likely it is you’ll get into an accident, and the more you’ll have to pay for car insurance.

Your car

When it comes to your car, there are two major factors that go into deciding your rates – market value of the car and history of other drivers who own the same model car. If you spring for collision and comprehensive coverage, your car will also determine the rates you pay for that coverage. While some online tipsters will tell you that you can save money on car insurance by buying a safer car, research has shown that this doesn’t make a difference.

Your credit

While some states prohibit auto insurance companies from using a credit score to determine your rates, most states allow it. In general, as long as you pay your bills on time and have an average or above credit score, you should be fine.

The kind of coverage you want (and how much you want)

Of course, one of the most important factors that goes into deciding your rate is the type of coverage you’re buying (and how much of it). The more coverage you buy, the more expensive your plan will be. If you buy some of the optional car insurance products, like gap coverage or collision and comprehensive coverage, your overall car insurance bill will go up.

The most important thing to remember is that you shouldn’t avoid getting the coverage you need because you think it’s too expensive.

Each company has their own formula for deciding rates – some estimates say you can save hundreds of dollars every year by shopping around.

Image: Jenn Durfey