How do auto insurers calculate rates? Cheap Insurance found seven factors that affect car insurance using research from around the internet.
7 factors that affect your car insurance rate
How age, location and other factors affect your car insurance rate
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Car insurance provides drivers with peace of mind knowing that if you are ever in a car accident, the damages will be covered and someone will be there to help you sort through the consequences. However, peace of mind comes at a price: Car insurance will cost American drivers an average of $1,553 per year as of 2022, according to US News & World Report.
If you thought car insurance was too expensive, you may still have to pay for it. Auto insurance is mandatory in every US state except New Hampshire and Virginia. New Hampshire still requires drivers to be able to pay for accident costs if they are at fault in a car accident. Virginia has laws about auto insurance, but allows drivers to assume all risk and liability by paying the state a $500 annual fee for uninsured motor vehicles.
Even though most states require insurance, that doesn’t mean drivers have it. In 2019, 1 in 8 drivers had no insurance, according to a 2021 report published by the Insurance Research Council.
To better understand how insurers calculate rates, Cheap Insurance compiled a list of seven factors that affect car insurance using research from around the internet.
Age
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With time comes experience, and this is an element that insurers look at when setting rates. Teenagers have less experience and are more likely to take risks such as texting or not wearing seat belts while driving. In 2019, the Centers for Disease Control and Prevention found that about seven teenagers died each day due to car accidents and that teenage drivers are three times more likely to be in a fatal car accident than drivers of other age groups.
Insurance rates begin to decrease at age 25 and age becomes less important until you reach age 65. After that, the older you get, the more likely it is that your premiums will go up again since older drivers more often have changes in vision and reaction times.
gender
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Insurance companies base pricing on risk factors, and gender is one of the most controversial. Teenage boys tend to be the riskiest drivers, so their rates are high. Beyond that, though, there’s no telling whether men or women have higher rates — Forbes found that women generally have lower rates than men, but not across all age groups.
Not every state allows insurers to set prices based on gender—California, Hawaii, Massachusetts, Michigan, North Carolina and Pennsylvania have laws against gender-based pricing. Montana was among those states, but repealed its law in 2021. Since then, the Consumer Federation of America has found price disparities between men and women in Montana when other factors were equal.
location
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Drivers in cities pay more for insurance than drivers in rural areas. Urban areas have more drivers on the road, which means the likelihood of collisions will be greater. More densely populated areas are also subject to higher levels of crime and may report more burglaries and thefts, and therefore more claims. If you park your car on a street, you may have to pay higher rates because damage is more likely versus parking in a garage.
Areas with high speed limits can also dictate higher insurance rates, as speed is a major contributor to car crashes. Insurers may also consider localized extreme weather situations that can cause a lot of car damage, such as flooding, hail, extreme snow, ice and fires.
Driving record
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If you’ve been ticketed for a moving violation like speeding or caused an accident, your insurance premium will likely increase. The price increase will depend on the number and severity of cases and your insurance company’s policies. Insurers typically keep track of violations and claims for three years. Rack up too many violations or accident claims—or get pulled over for drunk driving—and your insurer may choose to cancel or not renew your policy.
Some insurance companies offer discounts for safer driving. Many are app-based telematics programs that track how much and how smoothly you drive to assess your discount level.
Car and model
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The type of car you have matters when determining insurance costs. Cars that have higher sticker prices and more high-end features cost more to insure because they are more expensive to repair or replace. If a luxury car is involved in an accident, repairs usually involve special parts that can be difficult to obtain. A lower, more common car can often be repaired with parts that are easier to find from repair shops, so it’s a lower and cheaper insurance risk.
Insurance costs can vary even between cars of the same make and model depending on the age of the car. Older cars (until they become antiques) are usually less expensive to insure than newer models.
mileage
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The more you drive, the more likely you are to be in an accident, so insurers look at how much you drive in a given year. According to the Federal Highway Administration, Americans averaged 14,263 miles on the road in 2019, which is roughly 39 miles per day. The pandemic kept many drivers off the roads in 2020, but driving returned in 2021.
If you don’t drive much – especially if you drive less than 15 miles a day – your insurer may offer you a lower rate. On the other end of the spectrum, if you drive more than 41 miles a day — about 15,000 miles a year — you may be considered a high-mileage driver and have to pay more.
Credit score
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In 2007, the Federal Trade Commission released a report showing that a driver’s credit score can be directly related to the number and cost of auto claims. Because of this, many insurers look at a person’s credit score (an indicator of potential late payments) or an insurance score (an indicator of whether a person will file a claim) to help calculate an insurance premium. of vehicles. The better your score, the better you will get because you are not as risky as someone with a poor credit score.
The Consumer Federation of America argues that the use of credit scores discriminates against good drivers who have fair or poor credit. Those who live in California, Hawaii, Massachusetts or Michigan don’t have to worry about this because these states prohibit auto insurers from looking at a person’s credit when calculating rates. Washington also had a ban on credit scores, but that was reversed in July 2022.
This story originally appeared on Cheap Insurance and was produced and distributed in partnership with Stacker Studio.