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Understanding the Factors That Affect Car Insurance Rates and How They are Calculated

Several piles of dollar bills to illustrate factors that will raise auto-insurance rates.

What if you were paying too much for your insurance and didn’t even know why?

The truth is that different factors affect whether you pay higher or lower rates. Until you know the different factors that affect automobile coverage rates, you’ll be paying companies too much money!

Fortunately, that works in reverse as well. When you know the different factors that affect your premiums, you can get a better price from your insurer. Alternatively, if you decide to shop around for a new policy, you’ll have the knowledge you need to save money and not pay more than the average rate.

Ready to start saving? Keep reading to discover more about the different factors that affect car insurance rates!

How Much Does Insurance Cost?

Nationally, the average cost of car insurance is $1,600 per year. That typically includes your state-required liability, as well as comprehensive and collision. Drivers who want an enhanced level of protection, as well as those who are financing or leasing, will go for this type of coverage. All rates are based on personal information that differs from person to person.

Different Factors That Affect Car Insurance Rates

At first glance, you might think there aren’t many factors that affect rates. In reality, there are quite a few factors you need to know about!

One thing you may notice is that some of these factors may be beyond your control. Nevertheless, it’s important to control what you can to control how much you have to pay.

·        At-Fault Accidents Impact Rates

If you’re involved in an accident that you cause and you’re found to be at fault — hold on to your wallet. Your premiums are about to go up in a huge way. Even if it is a minor fender-bender, as opposed to a serious crash, you’re likely to see an increase and pay more. While most companies may not increase your rates if the accident is not your fault, be aware that too many claims in a short period of time will probably make you a prime candidate for an increase.

·        Moving Violations Affect Pricing

Collecting a lot of moving violations, such as speeding, running red lights or stop signs, and making illegal U-turns are surefire ways to face an increase. Paying closer attention to speed limits, slowing down at intersections, and using the yellow light as a gauge to stop, as well as making U-turns in places where they’re clearly marked as “okay” can help you reduce the risk of getting a ticket. This, in turn, reduces your chances of an increased rate.

·        Driving While Impaired Is Always Dangerous

Whether you call it a DWI (Driving While Impaired or Intoxicated) or a DUI (Driving Under the Influence), it means the same thing — you’re in trouble. It also means your rates are about to skyrocket. These offenses include not only alcohol but also prescription medications and recreational drugs. The best way to avoid getting stopped for a DWI/DUI is simple — don’t drink or take drugs of any kind and drive.

If you end up getting convicted of a DUI or DWI, you may need to file an SR-22 with the state for a minimum of three years. As long as you have the SR-22 on file, your costs are going to increase. And even after you no longer have to file the SR-22, your policy may never be as cheap as it was before.

·        Age is a Factor That Affects Rates

Okay, this one you may not be able to avoid. As a parent of a teen driver that you assign to your policy, you will see a dramatic increase in your rates — mainly because of the group of “young drivers” your child falls into. This age group falls into the higher risk segment. The good news here is that if your teen is a high school or college student and maintains good grades of “B average” or better, your policy will be eligible for a discount. Plus, as younger drivers get older, their insurance costs will naturally drop. Just don’t get teen drivers a sports car – unless you really want to pay.

Interestingly, the age of your vehicle also affects how much your policy costs. Prices are set in part based on how much it will cost to repair or replace your vehicle. Because of this, newer ones are always more expensive to insure. If you stick with the same vehicle for a while rather than trading it in toward a new model, you should find that how much you pay for auto insurance rates naturally lowers over time.

Young female driver contemplates factors that affect car insurance rates

·        The Role Your Driving Record Plays

When it comes to different things that affect rates, your driving record is the most important factor. All it takes is a single accident to mess up your clean driving record, causing the price to increase, since you will enter a higher risk category. Therefore, you should try to avoid traffic violations whenever possible. Even if you get into a minor accident, you may want to consider paying out-of-pocket rather than filing an insurance claim that causes a permanent increase in your rates. By establishing a safe driving history, you may be able to get a discount on your policy from most auto insurance companies.

Keep in mind how much you drive is also a factor. This is why you may also save if you begin working from home.

·        How Much You Drive Makes a Difference

How much do you actually drive each year? In many cases, this can make a difference (either for the better or for the worse) in how much you pay. The math is simple: the more you are on the road, the likelier you are to get into an accident.

If you drive a lot, say, for a job that requires you to travel in your personal vehicle, you may end up paying more than the average person. Conversely, if you begin driving less, say, after you begin working from home, you may have to pay less. And at that point, you may also qualify for a low-mileage discount (more on discounts later).

·        Where You Live Affects Insurance Pricing

Many drivers are surprised to discover that where they live has a major impact on the cost of auto insurance. This is because your provider sets lower prices in areas that report fewer accidents. If you live in rural areas or another remote location (like one of the small towns in your state), your coverage may be less expensive than if you lived in an urban area. If you end up moving from cities to a more remote or generally safer place, you should update your insurer to see if you qualify for a more affordable new policy. Your zip code can even play a part.

·        Marital Status Plays a Part

Why does an auto insurer ask whether you are married or not? That seems like too much personal information! The answer is simple: Married people have a higher chance of avoiding accidents, resulting in 50% fewer accidents than single people. When you appear to be at less risk of collision or accident, you can lower your premium. Unfortunately, this means those who get divorced may pay a higher rate because they are now at increased risk of getting into an accident, according to stats!

·        The Type of Auto Has an Impact

Many different companies sell auto insurance, but they all have one thing in common: Basically, every insurer worries about how much it will cost to repair or even replace your vehicle after you file a claim. More expensive rides are more expensive to find replacement parts. Sports cars cost more to repair and replace. Your type of car may even require more specialized coverage, such as classic car insurance, which, of course, will be more expensive.

·        Different Factors Affect Different States

Earlier, we touched on the fact that moving to a different area can affect your insurance in certain ways. For example, regardless of whether you move from a dangerous area to a safe area, moving out-of-state may present factors that impact your rate, for better or for worse.

For example, the state of California does not allow gender to be considered when setting premiums. Outside of California, a female driver tends to pay less than her male counterparts. This is an important factor among young people, with young men paying significantly more than young women.

California, Hawaii, Massachusetts and Michigan also ban the use of your credit score when determining your premium. Outside of these states, a good or bad score is a factor when it comes to the cost of an auto policy, meaning those with a higher score can expect to pay a correspondingly lower premium.

Another issue that we can’t forget about is that each state sets its own standard for minimum coverage. While we always recommend getting more than the minimum, you should know that the amount of coverage you need is going to vary from state to state.

Ways to Lower Your Insurance Premium

Now, that we have reviewed the different factors that affect rates, here comes the fun part. We’re going to examine different ways to lower how much you pay for your auto policy premiums. These techniques can help you save money each month.

·        Bundle Your Policies

Do you get multiple types of insurance (such as renter’s or homeowner’s) through the same insurer? By bundling your auto coverage with your other types of coverage, you can save on how much you pay each month.

·        Ask About Discounts

All drivers can access a variety of special discounts. This includes discounts for a safe driving record, driving very little, installing anti-theft devices, and so much more. It’s always worth calling your agent and asking what discounts are available. Some may be easy to qualify for, and you may already qualify for certain discounts and not even know it!

·        Change Your Coverage

​The simplest way to lower your premium is to change your coverage. For example, dropping comprehensive coverage from an older vehicle can help you save big each month. Another idea is to consider raising your deductible if you don’t think you are likely to get into an accident. If you have a low deductible, you may be surprised by how much that is costing you per month.

·        Install Safety Features

The simple act of installing safety features, such as anti-lock brakes, can reduce your payment. Shatter-resistance glass is another good bet, as is upgraded lights and mirrors on older cars.

·        Boost Your Credit Score

​If you live in a state where your score affects your cost, you can take positive steps to boost your report. For example, a free monitoring service can let you know what your current score is and how to raise it. This service also gives you a chance to dispute anything incorrect in your history. Then, when you have a higher score, you will get better rates and even better interest rates when shopping for anything from a new vehicle to a new home.

·        Shop Around and Compare Costs

Most drivers pay for their insurance from month to month. That means it’s possible to switch to a new insurer at any time. Switching is very easy because you can get free quotes from different insurance companies at the click of a button. Once you find one that offers better pricing and packages than your current one, all you have to do is make a switch. Just like that, switching can lower how much you have to pay from month to month.

Get the Best Auto Insurance Rates Today!

Now you know the different factors that affect coverage costs. Freeway Insurance can help you save money on your policy. Call (800) 777-5620 to speak to a live agent or request a free auto insurance quote online to find out how much you can save.

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