How do auto insurance rates work?
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UPDATED: Jul 14, 2021
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- Auto insurance rates are calculated using a variety of factors
- Points are accumulated on your driving record for each traffic violation or accident
- There are discounts available for good driving and other factors
- Ask your online agent to advise you on how you can get the best deals
How your auto insurance provider calculates your rates is often a mystery to your average person. Maybe you’re like me, and you’ve plugged in your details at one of the major provider’s websites only to excitedly accept the rate quote then be surprised when it skyrockets moments later.
What causes rates to increase like this? And also why do rates increase or decrease at renewal time? When shopping for car insurance, one of the things people often want to know is how insurance rates are figured. Read along to learn more about how car insurance rates are calculated.
Make sure your rates are competitive by using our FREE comparison tool above!
How Insurance Companies Calculate Insurance Rates
To understand how auto insurance rates work, you should understand a few basic facts first. There are several factors that go into the calculation of your insurance rates, including:
Your Driving History and Traffic Violation Record
One of the most influential factors on your auto insurance premium rate is your past driving record.
The number of DUI’s, accidents, and traffic violations is the most important factor that influences your premiums.
So you should take care to keep your driving record as clean as possible. With time, you will be able to work off the infractions, but some will stay on your driving record for as long as ten years.
Your Age and Risk Factors
Insurance companies rely on statistics to tell them how likely you are to have an accident or cost them money by making claims. They are especially interested in the risk of a fatal accident .
Just like any company, insurance firms have to protect their assets from too much loss. So if you are 18 to 24, for example, you carry a much higher risk for an accident than someone who is 80 to 85 and your premiums will be higher.
The Make, Model, and Year of Your Car
Certain models of cars run a higher risk of accidents too. Sports cars, for example, statistically have more major accidents than other makes and models of cars.
Marc Ross at the the University of Michigan Physics Department outlines the statistical probabilities of certain makes and models of cars and their likelihood of accidents.
Insurance companies use this type of case study and data to help determine what they should charge in premiums when weighed against the risk of loss.
Classic Car Status
Classic cars have hard to find parts that as a result are expensive. Insurance companies must consider the difficulty that mechanics will have in locating replacement parts in the event of an accident.
Points for Bad Driving
Drivers accumulate points over time that become a permanent part of someone’s driving record. Someone who has a perfect driving record is going to get a much lower rate than someone who has three traffic violations.
All of these factors are taken into consideration when figuring your rate. However, there are some things you may be to get your rate lowered somewhat.
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Auto Insurance Discounts
You should also understand what common discounts are available. There are several discounts that could significantly lower your rates, including:
Reward Points for Good Driving
If you have a great driving record with few or no traffic violations, you may qualify for insurance rate discounts. Ask your online agent for details on whether a plan you are shopping for includes such discounts. They may tell you about this when you are shopping for a policy. If not, it’s fine to ask.
Good Driving Habits
Kelly Blue Book has a new program out that lets you track your driving through an app called Dojo. There is no charge for the app, and it rewards you with points for good driving for various driving behaviors.
While the app will not influence the rates your insurance company charges you for your premium rate, it may help you get into some healthy driving habits that will cross over into some real rewards over the long-term with your insurance rate.
Good Student Discounts
In addition to the safe driving discounts that anyone may qualify for with good driving records, students or younger drivers may also qualify for discounts on their insurance rates due to great status in school.
Such programs are not available from every company or in every case. However, by doing some shopping and comparing among policies and companies, you may find student discounts for younger drivers that can save you money.
Student in Another Town
Another type of auto insurance discount is sometimes awarded for young drivers who are students who live away.
Parents who still have their young person on their car insurance may want to look into this option if you are seeking to save some money on your student who lives away from home.
There are other types of discounts that you may qualify for, depending on your age, status, driving record, or special groups affiliations. Some insurance companies also offer discount rates for being in AARP for older drivers, and even for working in a government type job. Ask your online agent if any of the plans you are considering offer these options.
Shop and Compare to Save
As you can see, there are many ways you can save on your car insurance. You may not fall into any or all of the categories for car insurance discounts, but you may still be able to find a great deal simply by shopping and comparing costs and policies.
In the end, it’s great if you can qualify for one of the discounts, but the best auto insurance policy you can have is one that offers you year-round savings based on your good driving record.
Shop our site and compare auto policies side-by-side to see which one offers you the essential coverage you need, plus any add-ons that you want to add to your plan. Finding the best plan takes some time, so don’t be in a rush to locate the policy that will best serve your needs.
Enter your zip code into our FREE comparison tool below! Make sure you’re not paying more than you should be.