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, mainly in the insuranc...

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UPDATED: Oct 19, 2021

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Here's what you need to know...

  • Auto insurance rates are filed with the Department of Insurance and must be approved
  • Rates are based on risk and the likelihood that the household will file a claim
  • Every insurance company sets their own rates to be competitive in a certain segment of the market
  • Several different rating factors can have an effect on rates because they can change a driver’s risk class
  • Some insurance rating factors include: vehicle type, driving record, claims record, annual mileage, vehicle usage, age, driving experience, gender and credit

When you contact insurance companies to request a rate quote, the company will ask you for personal information before the agent is able to give you an accurate estimate. It’s not possible to give a generic or universal rate quote because auto quotes are so personal in nature. Start comparing car insurance rates now by using our FREE tool above! Before you begin to price shop it can be helpful to learn how rates are set and how your personalized rates are calculated behind the scenes. Read this guide to auto insurance rate determination, and you’ll feel comfortable as you fill out any type of auto quote form or application.

How are rates set by auto insurance carriers?

The insurance industry is a highly regulated one, and in 1945 the McCarran-Ferguson Act made it the state’s responsibility to do the regulating. While it’s regulated by the Department of Insurance, the regulators have a responsibility to keep the marketplace a competitive one. This is why all insurers are required to calculate rates and file these rates with the department for prior approval before they can begin to use them in quotes.

According to the National Association of Insurance Commissioners, each state department is in charge of keeping insurers solvent and protecting consumers by keeping rates fair. Here are the guidelines that all states follow to regulate rates:

1. Rates must be adequate to pay out projected claims
2. Rates must not be excessive so that the company earns exorbitant profits
3. Rates must not be discriminatory and must project a difference in expected claims

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What does risk have to do with rates?

Not every household has the same likelihood of filing a claim. Some households have very safe drivers with safe vehicles who barely drive and others have vehicle owners who have blemishes on their record and who drive 20,000 miles per year. Since so many different aspects can either raise risk or lower the risk that’s present, it’s important that carriers place each driver into a risk classification while they’re determining the appropriate amount of money to collect in exchange for coverage.

What are the uncontrollable rating factors that affect premiums?

Every car insurance company has its own formula when determining coverage costs , however, there are some general factors that can affect your rates and maybe save on your premiums.

There are two types of rating factors that can affect your premium quotes and your official rates–uncontrollable factors and those that can change based on your driving habits and actions. While some believe that the uncontrollable factors that affect rates are unfair and discriminatory in nature, state regulators have found that the following have basis based strictly on claims statistics. Here are the uncontrollable factors that will affect your premiums no matter what you do behind the wheel:

  • Age: Drivers aged 16 and 17 are 9 times more likely than a middle-aged driver to have an accident and drivers over 80 are 5.5 times more likely. Mature drivers have fewer accidents than less experienced drivers which is why insurers charge more teenagers or young people.
  • Experience: Drivers with less than 9 years of licensing experience are the riskiest
  • Gender: Males, especially young drivers, are two times more likely to have an accident than their female counterparts. Women have fewer DUI accidents and have less serious accidents than men.
  • Marital Status: Married males in a previously risky group may receive some credit because married drivers receive a break in rates

What are the rating factors that you can control?

It can be frustrating to know your gender and your date of birth can affect how your rates are calculated, but there are also factors that you can control. These factors may be able to offset some of the uncontrollable factors that might drive your premiums up.

While not all companies use the same parameters, here’s a list of what usually determines the price of your auto insurance policy.

Some factors that can put you in a better rate class based on your habits and your movements behind the wheel include:

  • Driving record: It’s easy to say “obey the driving laws,” but failing to do so leads to a loss of discounts and surcharges. If you’re eligible for traffic school, take it. The better your driving record, the lower your premiums.
  • Vehicle type and safety: The body type and the safety record of a vehicle effects premiums dramatically. If you’re buying a new car, focus on safe vehicles with low rates.
  • Garaging zip code: If you’re moving, consider how the territory and zip code could affect your insurance expenditures. Areas with heavy traffic and high crime rates will have higher premiums.
  • Credit score: Some states allow insurers to use credit scores to determine if you’re likely to file a claim. Check your credit for errors if your credit score seems low.
  • Vehicle usage: If you’re driving to and from work, your rates will be higher than if you’re driving for recreation. Update usage if you’re working from home or biking to work.
  • Annual mileage: How much you drive affects your exposure to accidents. The more you drive the more exposed you are. If you limit mileage, you may qualify for a low-mileage discount.
  • Geographic location: The state, the city and even ZIP code can affect how much you pay. Drivers who live in a high-risk location can pay higher costs due to higher rates of vandalism, theft, and accidents.
  • Grades: For drivers who attend school full-time, many insurers offer a Good Student rating that’ll reduce rates by as much as 30% for being responsible.
  • Voluntary training: Another way to reduce risk and rates is to take voluntary driver training through an approved provider. These classes teach young drivers to be more defensive and may help mature drivers brush up on their skills.

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Why comparing auto insurance rates is so important?

If you feel like you’re paying a fair rate for insurance, think again. You won’t know until you’ve started to compare rates through many different carriers that you’ll be able to confirm that you’re getting the best deal.

Every company sets their own rates and decides on the segment of the market that will be targeted. Some companies are priced competitively in every market and others are only competitive with a certain demographic of the driver.

To find the carriers who are priced to win your business, you’ll need to do a price comparison.

The quickest and easiest way to calculate the premiums that you’d potentially pay through the marketplace is to use an intelligent online rating tool. By using a brokerage-style quoting tool online, you can enter your personal information once and find out the prices through dozens of insurers. After you’ve compared the auto premiums, you can go a step further and compare the insurers so that you can make your final policy selection. Start comparing car insurance rates now by entering your zip code in our FREE tool below!