It is easy to chalk up car insurance rates as a bunch of random numbers made up to milk policyholders for every cent they’re worth. That usually isn’t the case.
There’s a lot of mathematics that goes into the calculation of auto insurance rates. Insurance companies build up a detailed profile of an individual based on personal information such as claims data, credit history, and other factors.
The gist of it is simple – insurance companies want to minimize the risk on their end. They make an educated guess based on their algorithms to predict how likely you are to file a claim. The higher your risk, the higher your auto insurance rates will be. The safer your profile, the less you’ll have to pay.
Some of these risk factors are obvious, things like your credit history, previous history with road accidents, and more. Insurance companies often have lots of statistical data to back up these ratings.
What are the main ‘rating’ factors for car insurance rates?
1. Geographical Location
The first information insurers will ask of you is your ZIP code because where you live affects your base rates. If you live in a densely populated area, then the likelihood of road accidents goes up. For obvious reasons, driving in an urban area exposes you to more risk than in a less-populated area with fewer people and cars on the road.
The ZIP code also reveals the number of stolen vehicles in the location, amount of claims, case of vandalism, and dangerous weather patterns. All this data goes into assessing the risk associated with providing insurance to you and your car in the ZIP code.
Some states require insurers to calculate car insurance rates based on other factors such as your driving experience and annual miles driven before taking the ZIP code into account.
2. Age
Statistics haven’t always looked favorably on younger drivers because they usually run the highest risk of getting into accidents. A little immaturity and a few distractions on the road can cost insurance companies a fortune. This explains why they reserve high car insurance rates for younger drivers. The good news is that the rates decrease as the driver gains more experience with age.
It can drop by as much as 20 percent when drivers turn 25. Data revealed by the Insurance Institute for Highway Safety (IIHS) shows that drivers between the ages of 30 and 70 are much likely to cause accidents. For the most part, auto insurance rates stay fairly stable for policyholders until they turn 70. As it turns out, elderly drivers also pose a higher risk on the road and pay a lot higher.
Of course, this gender-bias is fully backed up by studies and raw data. Senior drivers have poor motor skills that affect their ability to stay out of trouble.
Some states, such as California, Hawaii, and Massachusetts, do not allow insurance companies to rate on age.
3. Gender
According to the IIHS, men rack up more miles on the road and engage in riskier maneuvers on the road, like speeding, not using the seat belt, or driving under the influence. The IIHS reported more accidents involving male drivers than female drivers. This doesn’t necessarily mean that men pay higher car insurance rates than women.
Studies show that gender differences in accidents on the road diminish as drivers get older. When males and females reach their 30s, their car insurance rates are comparable. As they reach their 60s however, the rates for men increase over females, this is because older men cause more accidents than older women.
Some states prohibit gender bias in calculating car insurance rates, these include:
- Hawaii
- North Carolina
- Michigan
- Massachusetts
- Montana
- Pennsylvania
4. Driving Record
A policyholder’s driving history is one of the most important pieces of information used to calculate car insurance rates. Drivers with a clean history automatically qualify for better rates and also receive a safe driver discount, which further lowers their rates. Drivers who have had an accident or ran into trouble with the law (DUI, speeding, etc.) will have to pay higher auto insurance rates.
A minor infraction on the road, such as a speeding ticket, is enough to affect your rates by as much as 40 percent. A major violation can affect rates by more than 100 percent because of increased rates and loss of discounts.
5. Marital Status
Married couples are less likely to perform risky maneuvers on the road than single drivers (including divorcees and widowers). A report by the National Institute of Health found that single drivers up to two times to cause accidents than their married drivers. As a result, married couples pay up to 15 percent less compared to single policyholders.
Moreover, married drivers may also receive discounts such as multi-policy discounts and multi-car discounts.
Massachusetts does not allow car insurance companies to base rates on marital status.
6. Driving Experience
Drivers with less experience pose a greater risk to auto insurance companies. Anyone who hasn’t driven a car, regardless of their age, will likely pay higher car insurance rates. Many argue that teens are not only inexperienced but also less mature due to their age. This means a 30-year-old getting newly licensed is more mature and than a 17-year-old and pays a lower rate.
The more years a driver has on the road, the less they have to pay. Rates get better when policyholders have clean driving records. The combination also qualifies them towards further discounts.
7. Claims Records
Insurance companies also look at the claims policyholders have made with them and other auto insurers. If the amount paid out is less than a certain amount, such as $2000, it may keep car insurance rates on the low end.
Keeping Your Car Insurance Rates in Check
Certain factors are beyond your control, such as the area where you live, your age, gender, and weather. But things, like building a good credit score and keeping a clean driving record, will go a long way in helping you negotiate lower car insurance rates. And as always, look for multiple quotes from different vendors to see what’s in store for you.
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