If you own a car, you probably also own car insurance. After all, the law makes it mandatory in most places. However, car insurance premiums aren’t the same for everyone. Car insurance companies take into consideration several factors before drawing up a number for any individual. This may include things like age, gender, state of residence, driving history, etc.
Although some states have banned the use of certain factors unrelated to your driving history to calculate premiums, some have no restrictions in place. To make the process smoother for you and the insurer, make sure to gather details about yourself, your vehicle, and your insurance history beforehand. This way, shopping around and finding the best insurance becomes much easier.
Here are 6 of the most common factors that determine your car insurance premium.
Location is by far the most important determining factor for car insurance premiums, and it could vary drastically depending on your city, state, locality, or even down to the ZIP code where your vehicle is parked.
“Rates by states can vary by as much as 400%, with Louisiana being one of the highest in the nation,” says John Espenschied of Insurance Brokers Group, LLC. “Twelve states require personal injury protection (PIP) coverage, which significantly boosts the cost of car insurance,” Espenschied explains. “These states are known as no-fault states and require your insurance company to pay for your bodily injury if you are involved in an accident regardless of fault
Moore says that your parking ZIP code provides information such as population size and other information related to thefts and accidents. Car owners who live in areas prone to severe weather conditions may also be subject to higher insurance premiums as it is more likely that their vehicle may be damaged by the weather. For instance, Hurricane Harvey left 422,000 insured vehicles damaged in its wake and about 300,000 car insurance claims were made after Hurricane Katrina.
However, if you live in California or Michigan, there’s some good news for you as car insurance companies aren’t allowed to use ZIP codes to determine insurance premiums in these states.
It’s no secret that having a healthy credit score is crucial to financial stability, and you probably knew that it will be taken into consideration when you apply for a car loan, but did you know that it is also a determining factor of car insurance premiums?
“Credit has been used in the insurance industry since the 90s to help carriers assess the risk of claims being filed,” says Cynthia Moore of Salzburg Insurance in Norfolk, VA.
Your credit score is an indication of your financial history, which is why car insurance companies rely on it to predict future behavior. People with lower credit scores are statistically more likely to file claims than those with higher credit scores. Therefore, Moore explains, insurers consider a lower credit score as an added risk factor and as a result, set higher premiums.
However, you are in luck if you live in California, Hawaii, Massachusetts, Michigan, or Washington, as these states do not allow credit scores to be factored in when calculating car insurance premiums.
Car insurance companies are allowed to consider your insurance history in all states except New Hampshire. This allows them to assess how long you’ve successfully maintained it. Espenschied of Insurance Brokers Group says that showing a history of five or more years with a single insurance company will qualify you for better insurance rates as it “shows longevity and willingness to keep insurance year after year.”
On the contrary, if you have had a lapse in insurance coverage in the past, this could work against you as the provider could increase your premium to cover the additional risk. “People who drive with no insurance and then decide to buy insurance have a much higher likelihood of canceling, especially if purchased simply to renew license plates or go to court to show proof of insurance,” explains Espenschied.
Your long history of successfully maintaining car insurance may not help you much if you have a shoddy driving record. Car insurance companies consider those with poor driving records as high-risk and therefore charge higher premiums to cover this risk. At the same time, having a clean driving record works well in your favor as you will be considered low-risk. On top of lower premiums, you may also qualify for additional savings such as safe driver and claims-free discounts.
Age and Gender
Regardless of all other factors, car insurance rates will fluctuate throughout your life as a driver because your age is one of the major determining factors that affect the calculation of premiums. Statistically, teen drivers are four times more likely to crash their cars than those who are 20 or older. The IIHS says that this is mostly due to inexperience and risky behavior.
“Rates stay level between 30-65 and then, with most carriers, you will start to see an increase in rates for drivers over 65, and especially over 75,” says Moore of Salzburg Insurance. IIHS says that senior drivers have higher crash rates than middle-aged drivers (although still not as high as teenagers) and Moore explains that studies have found decreased vision and slower reaction times to be the reason why.
As for gender, insurance companies in California, Hawaii, Massachusetts, Michigan, Montana, North Carolina, and Pennsylvania are not allowed to factor it in when calculating premiums. However, if you do not live in any of these states and you are a young male driver, you may be charged higher premiums.
“Men typically have higher premiums than women, especially in the under 25 category,” says Moore of Salzburg Insurance. Young men are more likely to buy faster vehicles, not wear seatbelts, and drive past the speed limit, causing more claims.
The make and model of your vehicle, as well as its age, will also affect your car insurance premium. It is safe to assume that newer vehicles will cost more to insure than older ones as new parts will be more expensive, but there are certain ways in which premiums for new cars can be reduced as well. This can be done by checking if your car is eligible for additional savings, for instance, if it has safety features such as accident-avoidance systems or electronic stability control. If so, you may be able to get a better deal on a new car than on a car that is a year or two old that doesn’t have the same features.