Understanding car insurance rates

When it comes to factors that impact car insurance premiums, a lot goes into the equation. But it mostly boils down to one thing: risk.

The more likely a driver is to have a loss, the higher the driver’s insurance rates. While factors that affect rates include statistical and geographical data, there are a few aspects you can directly control.

Each state has regulations governing what insurers can use (or not use) to develop insurance rates. And different insurance companies may assign varying levels of importance to these factors. If you’ve racked up a few speeding tickets, for instance, the impact on your premium may differ from one auto insurer to another.

Let's examine the most common examples of factors that affect car insurance.

Most Common Factors That Affect Car Insurance

Car insurance providers base their policy pricing on a combination of factors, and the extent to which any one factor influences your premium may vary by state.

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Driving Record

Driving record is an important indicator of risk. If you've had accidents in the last three years, insurance providers may view you as a higher risk and set your premium accordingly. Likewise, less experience on the road might lead to higher costs, particularly for those with fewer than three years behind the wheel.

On the other hand, maintaining a clean driving record can be rewarding. Safe driving often leads to lower rates and can make you eligible for good driver discounts, which can significantly slash your premiums. So responsible driving pays off in more ways than one. 

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Mileage

You might be in for a pleasant surprise if you use your car sparingly, like for occasional weekend drives or short commutes. Lower annual mileage often leads to a lower risk of accidents and receives a reduced car insurance rate.

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Geography

Where your car is garaged and the area where you live can have a substantial effect on how much you pay for insurance. When determining your rates, insurance providers take location-specific variables into account, such as:

• The number of accidents in the area
• Frequency of:
  • Theft
  • Vandalism
  • Natural Disasters

Regardless of other factors like your driving record, statistical claims data helps insurers understand their risks.

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Age

Given the wealth of data indicating differences in claim rates across various age groups, insurance companies factor in your age to assess your risk profile. As a result, both younger and older drivers tend to encounter higher insurance costs.

Insured Vehicle 

The value and features of the car you're insuring can give insurers a glimpse into the level of risk they're assuming when providing coverage for that vehicle.

Common vehicle characteristics that affect insurance rates include:

• Accident Rate: The frequency at which a particular vehicle model is involved in accidents can influence insurance rates. Vehicles with higher accident rates may have higher premiums.
• Repair Cost: The cost to repair a vehicle after an accident or damage can affect insurance rates. Cars with expensive repair parts or complex repair processes may increase premiums.

• Purchase Cost: The initial cost of buying a vehicle can impact insurance rates. Generally, more expensive cars may come with higher insurance premiums.

  
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• Engine Size: The size and power of the vehicle's engine can play a role. High-performance or larger engines can often come with higher insurance costs.
• Theft Rate: If a particular vehicle model is frequently stolen, it may result in higher insurance premiums as theft risk is considered.
• New Technology: Modern cars equipped with cutting-edge safety features and technology might qualify for cost savings, as they can lower the likelihood of accidents. Keep in mind, however, that some features may cost more to repair. 
  
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Type & Amount of Coverage

 When putting together your car insurance policy, factors that affect the premium include:

1. The type of insurance. Different types of coverages insure against different risks—and differ in cost. Liability, Collision, Comprehensive, and Uninsured Driver coverage all vary in risk and cost.
2. Policy limits. Limits are the maximum amount the insurer pays out on a claim. The higher the limit, the higher the rate.

3. Deductibles. Insurers give policyholders a choice of deductible amounts on relevant policies. Choosing a higher deductible lowers the premium but exposes the insured to higher out-of-pocket costs.

Use of Vehicle 

A vehicle might be driven for personal or business reasons—sometimes both. The purpose for your driving is a factor that affects car insurance rates.

Let's explore the distinction between business and personal use:

Standard car insurance policies typically cover individuals for personal use. Additional coverage is likely needed for those driving for business reasons.   

Vehicle Type & Value

As noted, your choice of vehicle can also impact your insurance rates. Different types of vehicles come with varying levels of risk. Insurance companies consider this when determining your premiums.

Your car’s value plays a crucial role in the insurance rate calculation. The more valuable your vehicle, the more it could cost to replace or repair in case of a mishap. Premiums for more expensive cars tend to be higher because of this.

Other Factors That Affect Car Insurance Rates

Some states allow an insurance company to factor in other criteria that can impact your insurance premium calculation. Here are a few examples.

Credit History 

Credit history may be used by insurers to better predict insurance loss potential. This is based on multiple studies indicating that drivers with lower insurance-based credit scores tend to reflect higher claims-related risks. Depending on where you live, you may face higher insurance rates if your credit history is less than stellar.

Most states allow credit history to be used in some form, but there are some that do not allow the use of credit in determining car insurance rates. These states include: 

• California
• Hawaii
• Massachusetts

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Gender

Statistics show that men and women have different driving habits. On average, women are better drivers than men, and many states allow insurers to take this difference into account. However, the use of gender in calculating insurance premiums is not permitted in some states.

Car Insurance Rate Factors FAQs

1. Does a car’s color affect car insurance rates?

No. Insurers do not specifically factor in color to car insurance rates. 

2. Does marital status impact auto insurance premiums?

Yes. Insurers cite statistics showing that married couples are safer drivers and file fewer claims than single people, which can lead to savings in premiums. 

3. Do speeding tickets affect rates?

Yes. Speeding is considered a moving violation and will increase your insurance rate, as it’s indicative of unsafe driving.

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Additional Factors

Apart from factors discussed so far, several other criteria can influence your car insurance rates. These include:

1. Occupation: Your profession can play a role in determining your insurance rates, and certain occupations can qualify you for a discount.  
2. Insurance History: Your past insurance history matters too. A consistent record of being insured and maintaining higher limits of coverage can often lead to better rates. Uninterrupted coverage can demonstrate responsible behavior to insurers.

Car insurance companies may use different formulas to determine rates for drivers. But there are still steps you can take to find affordable insurance.

Change What You Can to Minimize Car Insurance Cost

While the sheer number of factors that can impact your car insurance rate may feel overwhelming, remember this: You still have options.

If you’re looking to minimize your insurance costs, focus on what you can control. You can adjust your amount of coverage to fit your budget. You can also spend less time on the road to help reduce your rate or swap out that convertible for a sensible sedan.

While a sporty roadster may get your motor running today, safe driving and consistent coverage never go out of style. And they just might save you some money, too!

With Toggle^®, you get auto insurance designed with you in mind.

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