Determining how your car insurance company prices your annual premiums can be a mystery. Quotes vary widely between insurance companies and motorists.
Understanding what affects your insurance rates can help you save money and ensure you get the right coverage for your needs. In this article, we’ll explore the many factors determining how an insurance company arrives at your annual premiums.
The factors that influence how an insurance company prices your premiums include three broad categories:
- Your profile (age, gender, vehicle type, etc.)
- The type of insurance coverage and policy limits you want in your policy
- Other market factors that are beyond your control
Your Profile
Insurance companies collect a lot of statistical data about motorists and their driving habits and history. Your base insurance rate generally consists of the following factors, some of which you can control, and others you cannot.
Age of the Driver. Data shows that safer drivers fall between the ages of 25 and 65. Drivers under 25 are generally more aggressive, reckless, and inexperienced, so they are involved in more accidents. Drivers over 65 have more driving experience but, due to cognitive decline and other health issues, are more likely to be involved in an accident. For these reasons, age plays a critical factor in setting your insurance premiums.
Gender. Young men are involved in more accidents than any other group. If young men are more likely to be involved in accidents, insurance companies may charge higher premiums to compensate for the additional risk.
Marital Status. The data shows married couples have fewer traffic infractions and car accidents than nonmarried drivers.
Where You Live and Work. Insurance companies try to collect and analyze data in as much detail as possible. Although insurance is regulated state-by-state, most companies try to compile information at a ZIP Code level to be as granular as possible. Areas with more accidents and higher crime rates can increase your insurance premiums.
Your Vehicle Make, Model & Year. In general, more expensive cars will have higher annual insurance premiums. Insurance companies will also consider the likelihood your vehicle is damaged or stolen.
Specific car models are more prone to grand theft auto, so the insurance rates are higher. For example, the most stolen cars in 2023 by location were the following:
- United States of America: Hyundai Elantra
- United Kingdom: Ford Fiesta
- Canada: Honda CR-V
- Mexico: Nissan Versa
Your Driving Patterns. The amount of miles you drive on a regular basis will also have an impact on your insurance rates. In general, driving fewer miles than more miles will help lower your insurance rates. Those additional miles can increase your insurance premiums if you have a long commute between your home and your office location.
Credit History. Many motorists are surprised to learn that their credit score and history can impact their insurance rates. Insurance companies have data that show that individuals with a clean credit history are less likely to have accidents or other traffic infractions, so their insurance premiums are less than those with a poor credit history.
Your Driving Record. Your driving history and previous insurance claims will impact your auto insurance premiums. Drivers with a history of accidents, speeding tickets, convictions for driving under the influence (DUI), and other traffic infractions may have higher premiums.
Coverage Levels and Deductibles
The level of coverage you select will directly impact your monthly insurance premium. Each state generally requires a minimum level of coverage and liability protection. For example, most states require an auto insurance policy to include Bodily Injury Liability (BIL) and Property Damage Liability (PDL) coverages.
For example, Tennessee requires every auto insurance policy to have BIL and PDL coverage. The minimum amount of BIL coverage is $25,000 per person and $50,000 per accident. Suppose you decide that you want more coverage than the minimum policy amounts. In that case, you may select a policy with a $100,000/$300,000 limit. More coverage means higher premiums.
Opting for higher liability limits, collision coverage, comprehensive coverage, or additional addons will increase your costs. Similarly, the size of your deductible related to Collision and Comprehensive coverage will impact your premiums. A higher deductible can lower your monthly premium amount.
You can find more information on the various types of required and optional auto insurance information in our article here.
Other Market Factors
Many other variables influence how an insurance company prices its auto insurance. Some of those variables include, but are not limited to, the following:
Rising Vehicle Repair Costs. The rising costs to repair vehicles are certainly increasing rates as well. Those rising costs include more expensive auto parts, rising wages, and labor shortages.
Extreme Weather. Inclement weather can certainly be a contributing factor to vehicle accidents and damage. However, the increase in extreme weather, both frequency and intensity, is causing more damage to vehicles on the roads and parked in driveways.
Extreme weather events, which include floods, wildfires, earthquakes, and hail damage, cause more vehicle owners with Comprehensive Insurance to submit claims for repairs. The increased number of claims submitted forces insurance companies to raise premiums on those policy add-ons.
Increase in Number of Accidents. As the number of traffic-related accidents increases, the number of claims submitted to insurance companies causes rates to rise for all forms of coverage, including Bodily Injury Liability, Property Damage Liability, and Personal Injury Protection.
Final Thoughts
Auto insurance premiums are influenced by a wide variety of factors, many of which are unique to you. Whether you’re looking to save on your premium or ensure the right level of coverage, knowing what insurers look for will give you a clearer picture of how much you should expect to pay.