Car insurance rates aren’t random numbers the insurer comes up with whenever a customer makes an inquiry. They are well thought out calculations derived from sophisticated algorithms that consider multiple factors. These factors determine how risky a client is—the riskier the customer is, the higher their insurance payments.
Insurance companies have tons of statistical data to justify their inclusion of each factor. The factors aren’t weighed equally, though. In addition, different insurance companies will use different calculations which is why two insurers will give different quotes to the same individual.
Your ZIP code determines the base rate. If you live in an urban and highly populated area, then heavy traffic, accidents and, therefore, insurance claims will be more prevalent than the national average. Living in a metro area makes your insurance more expensive than it would be if you were in a more rural setting where the odds of an accident are significantly lower.
The ZIP code is also used to assess the prevalence of auto theft, car vandalism, damaging weather and fraudulent claims in the area. Note that some states prohibit insurance firms from using location to determine your base rate. California, for instance, requires insurance companies to calculate the base rate using your driving experience, annual miles driven, and your driving record before they consider the ZIP code.
The younger the driver, the higher their premiums. Studies consistently show that younger, inexperienced drivers are more reckless and easily distracted when behind the wheel as compared to older seasoned drivers. Your insurance payments can drop by as much as 20 percent by the mere fact of turning 25.
Drivers between ages 30 and 69 are the least likely to crash so they typically get the most attractive offers especially if they have a clean record. Senior drivers (70 years and over) are considered high risk due to their propensity for lack of concentration, reduced motor function, and the risk of a sudden health scare such as a heart attack or dementia.
Nevertheless, Massachusetts, Hawaii and California bar insurers from rating clients based on their age.
Crash statistics for males and females aren’t the same. Accident data shows that younger inexperienced male drivers are more likely to be aggressive compared to their female counterparts of similar age. Men engage in riskier habits such as speeding, intoxicated driving, and not wearing a seat belt. The IIHS also found that crashes involving male drivers are usually more severe than those of females.
These gender differences, however, disappear with age. From their 30s onward, insurance rates for both sexes become comparable. Some insurers will even give male drivers lower rates than females. Once drivers get to their 60s, crash rates increase again for males and with that insurance payments.
Hawaii, Pennsylvania, North Carolina, Michigan, Massachusetts, and Montana do not allow the use of gender in calculating premiums due.
Statistics are great in helping to identify high and low-risk demographics. Nevertheless, just because a certain demographic is low-risk does not mean everyone within that group is automatically entitled to a lower insurance rate. As your driving experience grows, your driving record gradually becomes the most important factor in calculating your insurance premiums.
Your behavior on the road is the truest demonstration of your risk to the insurer. If you have a clean history and record of safe driving, you’ll get a lower rate and even qualify for a safety discount. On the other hand, if you are routinely involved in accidents, fined for speeding or charged with , insurers will demand a higher premium. In the worst case, you may be classified as uninsurable by some underwriters.
In addition to these 4 factors, other elements are considered such as driving experience, marital status, claims record, credit history, vehicle type, vehicle usage, and annual mileage. To get the best rates, work on having a clean record on the factors within your control.