With 15 years of immersion in the world of personal finance, Ashley Kilroy simplifies financial concepts for individuals striving toward financial security. Her expertise has been showcased in reputable publications including Rolling Stone, SmartAsse.
Ashley Kilroy Insurance WriterWith 15 years of immersion in the world of personal finance, Ashley Kilroy simplifies financial concepts for individuals striving toward financial security. Her expertise has been showcased in reputable publications including Rolling Stone, SmartAsse.
Written By Ashley Kilroy Insurance WriterWith 15 years of immersion in the world of personal finance, Ashley Kilroy simplifies financial concepts for individuals striving toward financial security. Her expertise has been showcased in reputable publications including Rolling Stone, SmartAsse.
Ashley Kilroy Insurance WriterWith 15 years of immersion in the world of personal finance, Ashley Kilroy simplifies financial concepts for individuals striving toward financial security. Her expertise has been showcased in reputable publications including Rolling Stone, SmartAsse.
Insurance Writer Jason Metz Lead Editor, InsuranceAs a former claims handler and fraud investigator, Jason Metz has worked on a multitude of complex and multifaceted claims. The insurance industry can be seemingly opaque, and Jason enjoys breaking down confusing terms and products to help others mak.
Jason Metz Lead Editor, InsuranceAs a former claims handler and fraud investigator, Jason Metz has worked on a multitude of complex and multifaceted claims. The insurance industry can be seemingly opaque, and Jason enjoys breaking down confusing terms and products to help others mak.
Written By Jason Metz Lead Editor, InsuranceAs a former claims handler and fraud investigator, Jason Metz has worked on a multitude of complex and multifaceted claims. The insurance industry can be seemingly opaque, and Jason enjoys breaking down confusing terms and products to help others mak.
Jason Metz Lead Editor, InsuranceAs a former claims handler and fraud investigator, Jason Metz has worked on a multitude of complex and multifaceted claims. The insurance industry can be seemingly opaque, and Jason enjoys breaking down confusing terms and products to help others mak.
Lead Editor, InsuranceUpdated: Nov 7, 2023, 4:04am
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From a driver’s perspective, understanding how car insurance companies set prices can be puzzling. Auto insurance companies use multiple pricing factors to determine your risk, meaning how likely it will be that you’ll file a car insurance claim. The lower your perceived risk, the better your car insurance rates.
Not all insurance companies weigh pricing factors the same. A car insurance quote you get at one company might be significantly cheaper at a different company for the exact same coverage. Here’s the main factors in the pricing formulas:
Your driving record includes your history of moving traffic violations and at-fault accidents. It’s one of the biggest factors that determines your car insurance rates. Car insurance companies look at your driving history for the past three to five years, depending on your state. If you have caused a car accident or received traffic tickets, expect to pay more for car insurance.
If you have an extensive history of at-fault accidents, traffic violations and/or a DUI/DWI conviction, you might have a tough time finding car insurance. If insurance companies deny you coverage, you may end up with non-standard car insurance, which is for “risky” drivers. Or as a last resort you’ll have to buy car insurance from your state’s assigned risk pool.
But here’s the good news: No matter what’s on your driving history, you can immediately work to improve it. Practicing safe driving habits and avoiding transgressions like speeding tickets and accidents will pay off. It may take a few years, but the longer you drive without any incidents will result in better car insurance rates.
Many auto insurance companies make heavy use of credit-based insurance scores when setting rates. They contend that credit predicts the likelihood that you’ll make a claim.
The use of credit-based insurance scores for car insurance pricing is banned in California, Hawaii, Massachusetts and Michigan.
The coverage you choose will have a major impact on your car insurance prices. But don’t be so focused on cheaper prices that you skimp out on the coverage types that you actually need.
For example, don’t only buy your state’s minimum requirements when you need full coverage car insurance. Not having enough car insurance could be a recipe for financial disaster.
Here are some coverage types:
Your car insurance company might offer additional options such as:
Your deductible amount will also factor into your pricing. The deductible is what you pay out-of-pocket if you file a claim for car repair bills. You can typically choose deductible amounts that range from $250 to $2,500. The higher the deductible, the less you’ll pay in insurance premiums.
If you are a new driver and this is your first car insurance policy, you can expect to pay a higher rate. That’s because car insurance companies won’t have much information to evaluate your risk.
A “coverage gap” can also cause higher rates when you buy auto insurance. This is a period of time when you don’t have car insurance. For example, if your car insurance company canceled you for non-payment or you were between cars and didn’t have auto insurance. Insurers see the coverage gap as a higher risk, which often translates to higher car insurance premiums.
If you don’t have car insurance but want to avoid a coverage gap (for example, if you are between cars), non-owner car insurance is a good option to maintain continuous car insurance coverage.
The type of car you drive also plays a significant role in setting your car insurance rates. They’ll look at past claims from similar models and evaluate repair costs, theft rates and payments made for comprehensive claims.
Young and inexperienced drivers will pay higher car insurance rates because they pose a higher risk for car accidents. For example, drivers between the ages 16 and 19 are three times more likely to be involved in a fatal crash than drivers over the age of 20, according to the Insurance Institute for Highway Safety.
Pricing factors driven by location include weather claims (such as hail), accidents and car theft. Drivers who live in metropolitan areas tend to pay more for coverage than those who live in suburbia due to higher rates of theft, vandalism and car accidents.
Other location-related factors include the cost of medical care, car repair costs and the frequency of auto accident lawsuits.
Car insurance companies often look at several non-driving factors when setting their rates, such as:
Some consumer advocacy groups have raised concerns that these non-driving factors are inherently discriminatory. In late 2020, insurance regulators pledged to address racism and discrimination within the insurance industry.
Here are some ways to cut your auto insurance costs:
