8 Things That Determine Your Car Insurance Rates


So you’re shopping for a new or used car and you are calculating how much your car payment will affect your monthly budget. What about insurance? Some people forget that the cost of owning a car includes the cost of maintaining an insurance policy – every state except New Hampshire requires drivers to have one. The formula for calculating your insurance premiums is highly complex, but here are eight factors that directly affect the cost.

The Type of Coverage You Want

The biggest difference in cost of insurance rates stems from the type and amount of coverage you wish to purchase. There are many, many different types of coverage available.

Liability insurance covers any damage or injury you may cause to another driver and/or their vehicle should you be responsible for an accident. Minimum coverage required varies by state.

Uninsured/underinsured coverage will pay out in case you are involved in an accident that’s not your fault and the other driver’s insurance is inadequate to cover your expenses, injury or damage. Some states require you to carry uninsured/underinsured motorist coverage.

Comprehensive and collision insurance covers the cost of repairing a vehicle if you are involved in an accident which is your fault and any costs due to theft or any other types of damage your car may suffer due to act-of-god situations like weather. Some policies cover the cost of a rental car should your car be in the shop for an extended period of time. If you financed your car, your lenders will most likely require that you purchase comprehensive and collision insurance on top of liability insurance.

Where You Live

Your zip code, other than the type of coverage you are purchasing, has the greatest effect on your insurance premium. If you live in Detroit, you can expect to pay an average of $5109, while if you live in Green Springs, Ohio, your yearly insurance premium is $547 per annum. Insurers ranks risk according to the number of thefts, collisions and vandalism in the area defined by a zip code. In addition, if you live in a zip code where the number of insurance claims is very high, expect to be quoted a greater premium than someone who lives a low incident area. Even if the insurance company knows you merely park a car in a high-risk neighborhood, you could find yourself paying larger insurance premiums.

Your Driving Record

Your driving record is the third most important factor determining the amount of your insurance premiums. If you have points on your license, or have an accident in your recent history, expect to pay higher insurance rates. Moving violations such as speeding or red light running can cause your premiums to rise for as long as three years. Insurance companies know that exceeding the speed limit is a factor in about 29% of fatal car accidents.

If your insurance carrier discovers that you were driving under the influence (DWI), your rates will skyrocket. Blood alcohol content (BAC) greater than .08 was the cause of 33% of all fatal crashes in the U.S. every year since 1990. Other serious traffic offenses such as reckless driving, hit-and-run and vehicle manslaughter are usually considered felonies and these violations will also cause your premiums to rise significantly. In some cases, carriers will cancel your insurance if you have a serious driving offense.

You can also see a ticket obtained in another state appear on your driver’s license. 45 states and the District of Columbia take part in interstate programs to share this information with the driver’s state of residence.   Should these tickets appear on your license, your carrier can find out about it and raise your premiums.

How Often Your Type of Car is Stolen

The Honda Accord and Honda Civic were the most stolen vehicles in 2013. The next most stolen vehicles in order, were Chevy full-size pickups, Ford full-size pickups, Toyota Camry, Dodge full-size pickups, Dodge Caravans, Jeep Grand Cherokee, Toyota Corolla, and the Nissan Altima. As was the case of the Accords and Civics, most of the cars stolen were older models, whose value seems to be mostly for chop shops selling the parts. If your car is on the most stolen list, your insurance premiums could be higher.

Car theft is currently at its lowest level since the 1960s; the most common reason cited is that most cars come factory equipped with an anti-theft device.   Nine states, Florida, Illinois, Kentucky, Louisiana, Massachusetts, Minnesota, New Mexico, Pennsylvania and Rhode Island, require auto insurers to provide discounts on your comprehensive coverage rates if an auto is equipped with an anti-theft device. If you do have an anti-theft device, you can save between 5% and 30% on your insurance premium. Higher discounts are given for cars that combine anti-theft with a car recovery system like OnStar. If your car is older, it may not have factory anti-theft equipment and purchasing an after market device can get you a bigger discount.

The Type of Vehicle You Own

The type and value of the car you are insuring impacts insurance premiums. The more your car is worth, the higher the premiums for comprehensive and collision coverage. Every feature and option on your car has an effect on your insurance premium. As we mentioned earlier, some cars have ant-theft devices, which will most likely result in lower rates for these vehicles. Cars with the same make and model may have a larger or smaller engine; larger engines contribute to speeding, which as we saw, is a contributor to fatal car crashes.  If your car has been rated high in safety features, you may get a reduction in your insurance rates.

Your Age

Statistics show that the older you are up to a certain point, the less accidents you have. The rate of accident-related deaths for people ages 16-19 is 3 times higher than for drivers over the age of 20, and while teens are less likely to drink and drive, when they do, they are far more likely to get into a crash. Younger drivers are more likely to speed and are less likely to wear their seatbelts while driving. If you are age 25 or under, you will pay higher insurance rates. Once a driver reaches the age of 70, insurance premium tend to gradually increase due to factors like impaired vision and mobility, poorer cognitive abilities and increased use of prescription medication which may impair driving.

Your Credit

While insurers do not pull your credit report to see how well you are managing financially, information from your credit report factors into what is called the insurance score.   The insurance score has been found to be statistically predictive of how likely an insurance claim is to be filed.   Some states prohibit the use of credit and insurance scores in determining insurance rates. These states are Massachusetts, Hawaii and California.

Favorable credit factors in an insurance score include: long credit history and no late pays. Unfavorable factors include: past due payments, collection, high debt and high number of inquiries (which result from credit applications). Coincidence? These aspects of your credit report influence your credit worthiness in the same way, positive and negative.

LexisNexis is one of main suppliers of insurance-based scores to insurance companies.

Your Gender

Men tend to drive more miles than women; and the longer you’re behind the wheel, the greater your chances of being involved in an accident. Crashes involving men tend to be more catastrophic than those by women; men tend to engage in more risky behavior than women such as driving without a seat belt, driving when impaired, and speeding. At all ages, men had higher per capita crash death rates than women. For these reasons, men see higher insurance premiums than women.

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