Factors Affecting Your Auto Insurance Rate

By Jim Sloan on March 30th, 2010
Auto Insurance

Auto insurance companies use a complex array of factors to determine your auto insurance rate. It starts with the type of car you are insuring, and factors in where you live, and how much coverage you need.

But other considerations are also used when determining your auto insurance premium. For example, in most states your credit rating can be used to determine how much you pay for auto insurance. Although many drivers and consumer groups dislike the use of credit scores to set rates, auto insurance companies say studies show a correlation between how well consumers handle debt and how often insurance claims are filed.

Factors Affecting Your Rates

According to the Property Casualty Insurers Association of America, the following factors affect auto insurance rates:

  • Where you live and drive
  • Amount of policy coverage
  • Deductible (the lower the deductible, the higher the rate)
  • How long you've been a customer with the auto insurance company
  • Driver's education, occupation, marital status, gender, age and experience
  • Number of cars (most auto insurance companies provide a discount for multiple autos)
  • Vehicle age, your annual mileage, and the vehicle's price and average repair costs
  • Claims history
  • Driving record
  • Vehicle safety
  • Anti-theft discounts

How It All Works

Rates are based on detailed studies done by auto insurance companies. For instance, auto insurers know that married people have fewer accidents and make fewer claims than single people. Insurance carriers also know that if you drive in densely populated areas you are more likely to have an accident, and may be forced to pay more for repairs and medical treatment. Therefore, auto insurance rates are higher in urban locations.

Lifestyle factors can also affect your car insurance rates. Discounts are available for those who don't smoke or drink, or students who earn good grades. Many drivers can qualify for discounts by taking driver improvement or accident prevention courses approved by the Department of Highway Safety and Motor Vehicles.

Using Credit Scores

The most controversial factor used by auto insurance companies to determine rates is a person's credit score. According to one study, more than 90 percent of auto insurance companies use credit information when underwriting new policies. Auto insurance companies look at your history of paying bills to retail stores, banks and mortgage companies, and review public records for judgments, foreclosures, and bankruptcies. Insurers also look at your debt, late payments, payment patterns, and available credit.

Some consumer advocates oppose the practice, saying many good drivers have developed poor credit histories in the current economy. Rather than looking at credit history, consumer advocates state that your driving record and how you treat your property should be what determines your rate.

Although 16 states considered bills to ban the practice of using credit scores to establish auto insurance rates in 2009, only three states ban the practice--California, Massachusetts, and Hawaii.

See average annual insurance rates for more than 2,000 vehicles

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