How Insurance Companies Calculate Your Car Insurance Rate

How insurance companies calculate your car insurance rates varies, but they usually look at specific factors, including age, driving record, and vehicle, to determine rates. Learn how car insurance companies calculate rates and how to lower costs.

UPDATED: Jul 13, 2023Fact Checked

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Jeffrey Johnson

Insurance Lawyer

Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 13, 2023

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UPDATED: Jul 13, 2023Fact Checked

When car insurance companies set car insurance rates they tend to favor customers who, statistically, are likely to be good risks while charging high-risk customers higher premiums. A good risk to an auto insurance company is someone who is not likely to get into a car accident or otherwise file a claim to recover under their auto insurance policy.

In order to build a customer base, auto insurance companies decide how much you should pay based on where you fit such risk factors as driving record, age, sex, number of miles driven per year, type of car, and more.

TIP: When comparing auto insurance rates, it is good to understand what factors affect your premium. By knowing how your auto insurance rates are calculated, you can find ways to lower your payments.

Your Car

Your car’s year, make, and model will impact auto insurance rates. The newer the vehicle, the more expensive the vehicle, and the more costly it will be to insure. Each vehicle is also rated by insurance companies and given a numeric symbol that represents how risky the vehicle is to insure. A lot goes into a vehicle’s symbol – year, make, model, safety features, crash information, etc. – are all calculated ahead of time to determine how much an insurance company should charge for insuring that car.

TIP: If you are thinking about buying a new vehicle and have one or two in mind, call your insurance carrier and see how the different year, makes or models may affect your rates. It might be your deciding factor.

Your Age, Gender, and Marital Status

Car insurance companies will use personal factors such as age, gender, and marital status into account when setting auto insurance rates.

  • Age: Age is a factor for people under 25, and for people over retirement age (depending on the insurance company). Both teenagers and seniors tend to have higher auto insurance rates because they are statistically more dangerous drivers than other age groups. However, elderly drivers can benefit from their experience and prior driving history.
  • Gender: Women have historically been at a lesser risk of serious car accidents than men, and will get lower rates.
  • Marital Status: You can get a marital discount for being married. Just got hitched? Congratulations! Now, call your auto insurance carrier and ask what car insurance discounts are available to you.

Miles Driven Each Year

The less you drive, the less likely you are to cost the car insurance company by getting into an accident or filing a claim. This is why you are asked for the mileage you drive back and forth to work each day. The use of your vehicle usually gives the insurance carrier a good idea of your exposure to the road. If you are lucky and work close to home, this could save you not only in gas back and forth to work but also on your auto insurance rates.

Home Location

Geographic location is one of the factors insurers use when pricing your auto policy. Auto insurance rates can change based on the following:

  • Urban v Rural: City dwellers generally pay more for insurance than those living in rural areas because the likelihood of an accident or theft increases where populations are larger. However, if a rural dweller lives in a region where dangerous weather is a constant concern, their auto insurance rates may be higher due to the increased risk of damage.
  • State Laws: Some states can require more auto insurance coverage than other states, which can increase auto insurance payments.

Thinking of moving? Check first to see how the change in zip code might affect your rates.

Your Credit Rating

The use of credit rating in car insurance premiums is standard in the industry. The thought is, the higher your credit score, the less risk you will be and therefore, the lower your premium.

Your History

Whether with the same company or another company, having insurance for the prior six months can make a huge difference in your premium. Most companies give a renewal discount.

If you remain with them and are accident and ticket free, you will see a slight discount on your premium (or at least it will not go up in rate) upon renewal of your car insurance. They also ask when comparing car insurance rates if you have had six months prior insurance. If not, you will see a huge jump in your rate!

TIP: Maintain your auto insurance and avoid lapses in coverage. This will ensure you keep a level premium when comparing rates.

Driving Record

Your driving record is probably the most significant factor in your auto insurance rates, particularly if you are a high-risk driver with a history of accidents, traffic violations, or DUI arrests or convictions. Underwriters look closely at your driving history to determine if you are a greater risk due to your driving habits.

TIP: Drive responsibly, not only for the sake of your auto insurance rates but for the other drivers on the road.

Now that you know what factors affect car insurance rates, there are things you can do to significantly lower your rates. Watch this video for tips to save on car insurance.

All of these factors will contribute to your car insurance rates, but you can improve those factors to get save money. Click here to get a free online quote for car insurance rates in your area.

For more information about getting the right car insurance policy to fit your needs, check out the following articles:

Click Here for a FREE car insurance quote today!

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Case Studies: Understanding How Insurance Companies Calculate Your Car Insurance Rate

Case Study 1: The Impact of Driving Record

John, a 25-year-old driver, has a clean driving record with no accidents or traffic violations. His insurance company considers him a low-risk customer and offers him a competitive car insurance rate.

Case Study 2: The Role of Vehicle Type

Sarah recently purchased a brand-new sports car. The insurance company considers sports cars to be higher risk due to their powerful engines and increased likelihood of accidents. As a result, Sarah’s insurance premium is higher compared to someone driving a standard sedan.

Case Study 3: The Importance of Mileage

Michael, who works from home, drives very few miles each year. His limited mileage reduces the chances of being involved in an accident, and his insurance company rewards him with lower premiums.

Case Study 4: The Influence of Home Location

Emily lives in a densely populated urban area with a high rate of car theft and accidents. The insurance company considers her location a high-risk area, leading to higher insurance rates compared to someone living in a safer neighborhood.

Case Study 5: The Significance of Credit Rating

Alex has a high credit score, indicating financial responsibility. Insurance companies often associate a good credit rating with lower risk, so Alex receives a more favorable car insurance premium.

Case Study 6: The Impact of Driving History

Lisa recently switched insurance companies but had a six-month gap in coverage. The new insurance provider sees this as a potential risk, resulting in a higher premium compared to someone with continuous coverage.

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Jeffrey Johnson

Insurance Lawyer

Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

Insurance Lawyer

Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.

Free Insurance Quote Comparison

Enter your ZIP code below to compare cheap insurance rates.

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