When it comes to car insurance, two people who may look similar on the surface could pay wildly different premiums. This is because so many different variables affect our car insurance rates. Some of these factors are in your control, but others are not.
So why do car insurance rates vary so much? And which factors have the most influence on those rates? First, we'll talk about how car insurance companies set their rates. Then we'll talk about some factors that can influence how much you pay for car insurance.
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Car Insurance Underwriting
Underwriting is the process by which an insurance company decides how much to charge its customers. Basically, the insurance company needs to figure out how not to ultimately lose money on you. The riskier you are to insure, the more you’ll have to pay for the privilege of insurance coverage.
Sometimes, the risk is fairly easy to assess. If you’re a 16-year-old boy with a shiny new driver’s license and a sports car, you are statistically more likely to make risky choices. And those choices often lead to accidents, which are both tragic and expensive.
In fact, the Insurance Institute for Highway Safety Loss Data Institute says that the fatal crash rate for 16-to-19-year-olds is nearly three times the rate for those over the age of 20. So it goes almost without saying that teenagers are among the most expensive people to insure.
But outside of these cut-and-dry facts driven by hard statistics, insurance companies are somewhat free to set their own underwriting criteria. Sure, regulators tell them some things they cannot count in their list of factors. In some states, insurance companies can't, for instance, look at your credit history when setting your insurance rates. However, insurance companies are generally able to look at a broad swath of personal data when determining whether to offer insurance and what rates to offer.
And insurers look at different factors differently. Some will count location against or for you more heavily. Others will take a closer look at your credit history.
This variation is why it can be so hard to say exactly what factors will affect your insurance rates. With that said, we do know many of the factors that most insurers will look at if they're able to do so. Here are the top factors insurance companies will consider:
Factors Car Insurers Consider
1. Age: In many of our state-based auto insurance reviews, we’ve found that age is the biggest determining factor in insurance premiums. And that holds with the data we cited above. Teenagers are the most expensive people to insure, followed by the 20-to-25 crowd. Once you are over 25, your rates will generally drop, but then they’re likely to go up again as you get into older age, where accidents are again more common.
2. Gender: It may seem discriminatory, but men almost always pay more for car insurance than women. Some studies have questioned this bias, but many still show that men drive more miles than women and make more risky driving choices. For instance, they’re more likely to get a DUI. So they’re more expensive to insure.
3. Marital Status: Married people are statistically less likely to get into car accidents, so they’re typically cheaper to insure.
4. Personal Credit History: There’s a common misconception that insurance companies look at a credit score like the one your mortgage lender sees. This isn’t quite the case. Instead, insurers use your credit history to create a credit-based insurance score, which can be a factor in how much you pay for car insurance. (Note that this factor is limited in some states and is outright banned in Massachusetts, Hawaii, and California.)
5. Criminal History: Those with a criminal history can look riskier to insurance companies, so they’ll typically pay higher premiums. Particular types of criminal behavior, especially driving-related behavior, are big red flags.
6. Driving Record: This one is fairly obvious. If you have a history of poor driving decisions, especially in the last couple of years, you’ll pay more for car insurance. Even small fender benders can make insurance companies jack up your rates.
7. Occupation: Insurance companies are allowed to consider what you do for a living when setting your rates. Again, this is based on statistical data that shows that people in certain careers are less likely to file car insurance claims. This particular rating factor is being disputed, though.
8. Level of Education: Again, this particular rating factor is under dispute in some states. But statistics show those with more education are less likely to get into accidents. So that college degree could come in handy when you apply for car insurance.
9. Grades: This is mostly a factor for younger drivers, and it typically comes in the form of a discount. Many insurers run discount programs for students in high school and college who maintain a certain grade point average. If you have teenage drivers, this is definitely a factor to pay attention to.
10. Years of Driving Experience: This seems intuitive, given our age-related factor above. But if you got a driver’s license later in life, you could end up paying premiums like a younger driver because you’re less experienced. This is why many insurance companies will ask at what age you were first licensed to drive.
11. Courses Taken: Insurance companies may provide additional discounts for defensive driving classes or for teenagers who took formal driver’s education courses. Seniors can also sometimes get discounts for defensive driving classes geared towards their age bracket. It’s worth checking out, for sure.
Related: Best Auto Insurance for Seniors
12. Claims History: The more insurance claims you’ve made, the riskier you’ll look to insurers. So you’ll pay higher premiums. This is why it can sometimes be a good idea to pay for damages out of pocket rather than making a claim against your insurance.
13. Type of Vehicle: Some cars, like sports cars, can be more expensive to insure because their drivers are more likely to show risky behavior. Others, like minivans, are less expensive to insure because they aren’t involved in accidents as often. Also, really expensive vehicles can cost more to insure because they’re more expensive to fix after an accident. Vehicles that are often stolen are also prime for higher premiums. Check out the most and least expensive vehicles to insure here.
14. Age of Vehicle: As your vehicle’s value drops, so will your car insurance premiums, particularly for comprehensive and collision coverage. However, you may lose out on some safety-related discounts for features your older car is missing.
15. Safety Features of Vehicle: These often play into discounts. Vehicles with safety features like antilock brakes and airbags will be cheaper to insure than cars without these. Newer safety features like lane-change alerts can also net you discounts these days.
16. Car Alarms: Anti-theft devices in your vehicle, including car alarms and other devices, can make your premiums go down quite a bit for comprehensive coverage, especially.
17. Where You Live: If you live in a more expensive state, you’ll likely pay more for car insurance, too. Your state’s minimum insurance requirements will also factor in, as you’ll pay more for minimum liability insurance in a state that requires higher levels of coverage. But, also, your costs can vary from one neighborhood to the next based on data like the number of vehicle thefts and accidents in your area.
18. Miles Driven Each Year: You’ll pay less for car insurance if you drive fewer miles, since that means you’re less likely to cause an accident. More car insurance companies are even offering the option to track your mileage with apps so they can more easily base your rate on your miles driven. Some companies are even offering the option to pay car insurance by the mile.
19. Miles Driven to Work: Most insurance companies will ask both how far you live from work and how many miles you drive per year. If you live close to work, your premiums may go down a bit.
20. Other Insurance Coverage: Carrying insurance on your home and your car with the same insurer can net you some big discounts.
21. Multiple Policies: Adding multiple cars to the same policy will typically reduce the per-policy rate. And having multiple drivers on the same policy is typically cheaper than each driver having his or her own policy. However, this can get tricky when it comes to insuring high-risk drivers like teenagers. It may make more sense to kick Junior and his old beater over to a separate policy so that the costs of insuring the newer, nicer family cars don’t go up.
22. Insurance History: Insurers prefer that you are continually insured, as driving uninsured--or even leaving that possibility open--is a big risk factor. So when switching companies, they’ll typically check out your current insurance information to ensure continuous coverage.
How They Work Together
Setting car insurance premiums is even more complicated than figuring out credit scoring factors. At least we know the general weight each factor in your credit score has! With car insurance premiums, we do know a few of the heavyweight factors, including age, driving history, and location. But, again, underwriting can be a bit of a mystery to those of us on the outside.
This is why you always want to get multiple quotes before choosing a car insurance company. One company may ding you heavily for a 5-year-old fender bender, while another practically ignores it. Some companies look at your credit history while others don't. And that doesn't even cover the myriad of discounts--some of which probably didn't make it onto our list--that different companies offer.
So do what you can to maintain a clean credit history, criminal record, and driving history. And then just shop around for the best insurance rates you can find.
If you’d like to compare auto quotes to see if you can lower your cost, check out our auto insurance quotes page.