Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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UPDATED: Jul 14, 2021

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Here's what you need to know...

  • Insurance rates are based on risk and how likely a policyholder is to file a claim for a liability or physical damage loss
  • All insurance companies selling standard auto insurance use similar risk factors industry-wide to assess risk and determine premiums
  • Common risk factors include: age, gender, driving experience, vehicle type, vehicle usage, occupation, garaging territory, etc.
  • Driving habits have a huge impacts on rates and this is why it is important to keep your driving record clean when possible
  • The best way to find competitive rates is to comparison shop

Car insurance is an expense that you can’t avoid when you own a car. Even though a minimum amount of coverage is mandatory, you aren’t obligated to buy your coverage from one specific insurer. As a consumer who’s trying to find the best rates, you need to understand how insurance rates are determined and how you can keep yours as low as possible. Start comparing car insurance rates now with our FREE tool above! Only after you learn how rate determination and risk go hand-in-hand, will you be able to know what to look for as you shop the market. Read this guide, and you’ll know exactly what steps you’ll need to take to lower your premiums without having to select low limits.

Why Rates Differ So Much in the Insurance Marketplace

In the United States, the cost of insurance can vary dramatically from carrier to carrier and from household to household. This is primarily because the personal car insurance market is a very competitive one.

To keep the marketplace competitive, the insurers are free to charge the rates that they file as long as they are considered reasonable and justified by the Department of Insurance.

You’ll never get the same rate from one insurer as you’re getting from another carrier that’s providing the same level of protection because of how rates are filed. Knowing this shows you just how important it is to shop around to find the best deal in your state.

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Understanding How Auto Insurance Rates Are Calculated

You might know that your driving record and accident history can impact your rates, but did you know that these aren’t the only factors that insurers use. In the world of insurance, where carriers are on the line for hundreds of thousands of dollars, risk is a huge price determinant. The riskier that a household is, the higher the premiums.

While your driving records may help the insurer assess your actions behind the wheel, there’s a long list of other factors that can be used to determine if you’re likely to file a claim. You might be surprised by the actual risk factors that tell insurers whether or not you should pay more for your coverage. Here’s a list of the most common demographic and car-related factors that can affect pricing:

  • Age and gender

Often related, younger drivers pay more because they have a higher incidence of claims. Younger males pay more than females in their age range. Statistics show 20-year-old male drivers pay twice as much than 25-year-old counterparts with the same classifications. Some states prohibit insurers from using age as a rating factor.

  • Marital Status

Single drivers in a high-risk class tend to pay higher rates than married drivers in their class because the claims data shows that marriage tends to reduce risky driving behavior.

  • Garaging Zip Code

Where you live is important because territories can expose you to loss. If you live in an area with a huge population and a high incidence of claims, you’ll likely pay more for coverage than someone in a suburb where the claims rates are low.

  • Credit Score

In some states, insurers can use information from your credit report to come up with a credit-related insurance score. The data shows how you pay your bills, how much debt you are in and more so that the insurer can see how you manage risk.

  • Vehicle Size and Safety Rating

Vehicle size, body type, and safety rating are all used to set rates for liability coverage and physical damage coverage. If you own a sports car that’s often driven at high speeds, you’ll pay more because of the risk and the cost for luxury repairs. Insurance companies also use information published by the Insurance Institute for Highway Safety to determine which cars deserve better rates.

  • Vehicle Usage and Mileage

Your driving activity can expose you to more loss. If you commute to work, you’ll pay more than someone who only drives for recreation. This is why companies use pleasure, commute, and business classifications to rate premiums. The company will also look at your annual mileage to see how much you’re on the road.

Maintaining a Clean Driving Record

The best way to keep your insurance rates as low as possible is to maintain a clean driving record. If you’ve been issued a citation, be sure that you take traffic school to erase it from site as long as you’re eligible for it. Unfortunately, that’s not possible for everyone.

Don’t be discouraged if you have a driving infraction. It’s possible that you can lower your rates even when you do have blemishes on your record. In fact, the steps that you take to lower your rates are the same if you’re in a preferred rate class or a high-risk rate class.

Reviewing Your Current Policy

Before assuming that the only way you’ll save is by switching carriers, you should review your current coverage. Even one little minor mistake on your policy can hike up your rates. It’s important that you check each renewal to see if specific rating factors have changed or if there’s a typo. If something is wrong, fix it to see if your premiums change. Some of the factors that are commonly outdated include:

  • Garaging zip code
  • Vehicle mileage
  • Driving activity
  • Driver assignment
  • Listed household drivers
  • Occupation
  • Vehicle safety and security features
  • Discounts for Good Grades, Driver Safety Training, Mature Driver Training

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Price Insurance Before Buying a Car

If you’re in the market to buy a car, it’s wise to compare the insurance costs for the cars that you’re interested in. Every car has its own premium because of its class code. By making a list of the cars that you like and pricing the cost for the same coverage across the board, you’ll be able to see just which car has insurance costs within your budget.

Buy Other Coverage From the Same Carrier

If you own more than one car or you need to buy property insurance, consider buying your coverage through the same carrier for multi-policy and multi-car discounts.

These discounts can quickly add up because they’ll be applied to each car or to each policy.

Insuring all of your vehicles and all of your assets with the same reputable company can also make managing your accounts much easier and less time consuming.

Try to Change Your Driving Activity

If you don’t drive to work or if you’re carpooling, you don’t have to pay for commute usage. Instead, you can tell the insurer and they’ll rate you as a pleasure driver where you will have a more beneficial rating. It can also be helpful to manage your mileage so that you can keep premiums down. If you go from an average mileage band to a low mileage band, it can help premiums.

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Choose High Deductibles

If you have an expensive vehicle or a newer model, it might be time to consider taking a higher deductible for your comprehensive and collision coverage options. The higher deductible means that you’re obligated to pay for more of the loss, but it also reduces risk. If you have a $250 deductible and you go to $1000, it could save you as much as 40% with some insurers. This is especially true when you’re already a high-risk operator or you have a youthful driver in the house.

Try to Get Discounts to Keep Rates Down

Lowering your coverage isn’t always the solution to finding the lowest rates. This is a possibility, but it also puts you at risk of being underinsured if you ever are in an accident. Instead of doing this, it’s best that you look for an insurer that offers a long menu of discounts. Some common options include:

  • Anti-theft discounts
  • Gated community
  • Occupation
  • Good Student Discount
  • Defensive Driver or Mature Driver
  • Loyalty
  • Driver Safety Training
  • Good Credit
  • Prior Insurance
  • Good/Safe Driver
  • Low Mileage Discount

The most effective way to lower costs is to shop around. By shopping around, you can find the insurer with the lowest rates for drivers in your demographic. You can either contact each company directly, or you can use your time wisely and access a rate comparison tool online. With this comparison tool, you can enter your personal information and see rates through dozens of companies at once. Start shopping, and use this information to find affordable rates. Start comparing car insurance rates now by entering your zip code in our FREE tool below!