Do you really think your auto insurance policy premium is just a random number the insurance company came up with? Of course it isn’t. There’s a method behind the madness of figuring out someone’s policy. The catch is, every company figures the numbers a little differently. There are a few main items that affect your rates, and once you know them, you can work at improving those factors to the best they can be so you can be sure to get low rates. Here’s a list of 9 things that factor into your auto insurance premium:
Driving Record: Isn’t it obvious that your past performance behind the wheel indicates what you are likely to do in the future? Auto insurance companies seem to think so. If you have a driving record full of past traffic violations and accidents, you are sure to see a higher premium than someone who does not have a list of offenses. Even if you have made the decision to drive better from now on, you will still need to prove this to the insurance company by having a certain time period (12 months or longer) free from any incidents. Anyone who has a clean driving record will get a better premium price.
Vehicle’s location: Where you drive your car on a regular basis and the location where it is parked when it’s not in use is a vital part of determining your premium. If you are driving your car or storing it in a location where there is a high crime rate, you will be paying more for auto insurance because there is an increased risk your vehicle will be stolen or vandalized, which will end up with you making a claim to the insurance company. Parking your car over night in a locked garage in a low crime suburb will give you a cheaper premium than parking the car on the street in the city during the night.
Credit score: Believe it or not, your credit score has an affect on your premium. You may begin to wonder what the correlation between credit scores and driving have with each other. Truth is, there is little direct connection. A bad driver could have a really good credit score, but unfortunately, on average this is not the case. Most people with bad credit also have a bad driving history. Auto insurers are led to believe that people who have a good credit score (or higher) are more responsible and cautious in general, including in their driving habits. Therefore, people with good credit are probably going to be filing less claims.
Age of driver: The age of the driver plays a tremendous role in the cost of the premium. The older the driver, the more experienced the driver is, which theoretically means the less chance there is of that driver filing a claim with the insurer. Young drivers don’t have the same level of know-how in dangerous situations on the road, and they tend to not see everything going on. Younger drivers are also seen as carefree and a bit irresponsible. These young drivers are eligible for discounts if they receive good grades, showing their level of responsibility.
Car: The make, model, and year of your vehicle is also an important factor in determining a driver’s rates. Think of it as the more the car is worth, the more insurance you will be paying to drive it because it costs more to replace if it’s damaged. To compare, think about driving a Porsche or BMW versus a Hyundai. The Hyundai is worth much less to replace than the Porsche or BMW, whether it is just a replacement part or replacing the entire car. If you want to keep your rates down, drive a modest car that is a few years old.
Mileage: When requesting a quote from any auto insurance company, you are asked how many miles you drive, or how many you estimate you’ll be driving in the next year. This is because the number of miles driven affects the premium. The thought here is the more miles you drive, the more you are on the road and the higher the risk is that you will be requesting a claim from the insurer. Anyone who is commuting every day of the week has a greater chance of being involved in an accident or receiving a traffic violation. A person who rarely drives has less of a chance.
Coverage purchased: Each coverage offered to drivers costs an additional amount and is added to the total policy cost. While some coverage options, like bodily injury liability and property damage liability, are necessary to drive legally in the United States, other coverage options are just that – options. By carefully reading through and understanding which additional coverage options you want to add or take off, you can increase or decrease your premium accordingly. Although it’s tempting to only carry the absolute minimum coverage on your policy, it may be wise to rethink and purchase a little more so you are better protected.
Deductible: For an auto insurance policy, each driver is given the choice of how much deductible should be included. A deductible is the dollar amount the policyholder needs to pay to the insurance company before the insurance company will pay for medical bills or repairs. The deductible amount varies, but it’s typically $250, $500, or $1,000. It could be even more with some insurance companies. When the policyholder chooses a high deductible, the insurance company lowers the premium because the policyholder is taking on more financial responsibility for accident-related expenses.
Marital Status: It’s true that married individuals pay less for auto insurance than their single friends. Insurance companies do not favor someone who is married over someone who is not; there is simply a strategy behind it. Insurers believe that someone who is married will take fewer risks because of their spouse. These fewer risks include driving safer when the spouse is also in the car.
There are other factors that determine an auto policy’s premium. You can always talk to your insurer to find out what else goes into making your premium. Some of these factors are easily changed, while others aren’t. Do what you can to make changes in your life so your premiums will decrease.
