Introduction
Do you ever ask yourself why your friend is charged less for automobile insurance despite you both driving identical vehicles? Auto insurance premiums aren’t a blanket rate. Insurers employ multiple factors — some you have control over, some you don’t — to determine your rates. In this handbook, we’re going to explain what affects your auto insurance premiums and how to keep your expenditures as minimal as possible.
What is an Auto Insurance Premium?
An auto insurance premium is what you pay (monthly, quarterly, or yearly) to keep your coverage active. Your premium guarantees that if you are in an accident or have car damage, your insurance company pays some of the expenses — as stated in your policy.
The insurance companies assess how much you pay based on your risk level. Let’s go into the main factors influencing those rates.
- Your Driving Record
Your driving record is among the most important things insurers look at. A clean record indicates you’re a good driver, which translates to less risk for the insurer.
Accidents and claims — The more accidents and claims you have, the higher your premiums tend to be.
Traffic violations — Speeding tickets, DUIs, and other infractions make you a greater risk as a driver.
Years of driving experience — New drivers pay more because they don’t have much experience driving.
Tip: Drive safely and avoid accidents to maintain a clean record. Most insurers have “good driver” discounts available after several years of no claims.
- Age and Gender
Although it may not seem right, your age and sex are factors in setting your rates — based on actuarial risk patterns.
Young drivers (under 25) pay higher premiums because they have higher accident rates.
Middle-aged drivers (25-65) usually receive the best rates.
Seniors (65+) can expect minimal increases as reaction time and vision can deteriorate.
Gender differences — Statistically, young male drivers are more likely to practice risky driving habits, so they have higher rates than young female drivers.
Tip: If you’re a young driver, a defensive driving course or good grades can earn you discounts.
- Vehicle Type and Value
What you drive is as important as how you drive. Insurance companies evaluate:
Make and model of vehicle — Sports cars, luxury vehicles, and high-performance cars are generally more expensive to insure.
Value of car — The costlier your car is to replace or repair, the higher the premium.
Safety features — Vehicles with advanced safety features (anti-lock brakes, airbags, lane assist, etc.) might be eligible for discounts.
Theft rates — Vehicles that are often stolen might be more expensive to insure, even if they’re not luxury vehicles.
Tip: If you’re purchasing a new vehicle, look for one with a good safety rating and lower repair estimate.
- Location, Location, Location
Where you live — and leave your car parked — affects your insurance premiums.
Urban locations tend to have higher premiums because they have more traffic, accidents, thefts, and vandalism.
Rural states generally pay lower premiums due to fewer cars on the road and a lower crime rate.
State laws — States have different minimum coverage mandates that affect base prices.
Tip: If you relocate within your state or to a different region, review your policy to make sure you’re still receiving the optimal rate.
- Mileage per year
The more mileage you log, the greater the likelihood of a crash — and the greater your bills might be.
High mileage drivers shell out more money because they are on the road more.
Low mileage drivers qualify for discounts if they drive under the national average (about 12,000 miles annually).
Tip: If you work at home or get around less, inquire about pay-per-mile or low-mileage discounts.
- Credit Score
In most states, insurers factor in your credit score to estimate your chances of making a claim. Research indicates that individuals with poor credit scores make more claims — and higher-scoring people pay lower rates.
Good credit = lower rates
Poor credit = higher premiums
Tip: Maintain good credit by paying bills on time, lowering debt, and reviewing your credit report for mistakes.
- Coverage and Deductible Options
Your deductible and coverage limits also influence your premium directly.
Greater coverage amounts equate to more protection — but higher cost.
Lower coverage amounts are less expensive but might find you lacking adequate insurance if you have a major accident.
Increased deductibles decrease your premium but will result in more expenses from you should you need to file a claim.
Tip: Taper your deductible and coverage to be safeguarded without overspending.
- Marital Status
Married drivers statistically file fewer claims than single drivers, leading to lower rates. Many insurers offer a marriage discount.
Tip: If you recently got married, update your insurer — you might get a discount.
- Insurance History
A continuous auto insurance history without lapses shows you’re a responsible driver. A lapse in coverage — even for a short time — can cause a rate hike.
Tip: Even if you change insurers, don’t leave gaps in coverage to maintain low rates.
- Discounts and Special Programs
Numerous insurers provide discounts to encourage safe or responsible behavior. Typical discounts are:
Safe driver discounts
Good student discounts
Multi-policy discounts (combining auto with home or renters insurance)
Multi-car discounts
Defensive driving course discounts
Low-mileage discounts
Anti-theft device discounts
Tip: Always inquire of your insurer about available discounts — you may be overlooking savings you are eligible for.
Conclusion
Auto insurance rates are determined by a number of factors — some within your control, some not. When you know how your rate is determined, you’re able to make decisions that keep your rate down without cutting back on coverage. Keeping your driving record clean, enhancing your credit score, and getting discounts will allow you to get a better rate while remaining fully covered.