How Are My Premiums Calculated?

Have you ever gotten the impression that insurance companies set their rates by drawing numbers from a hat or spinning a big wheel? It seems that way sometimes, but actually, they compile data over decades to determine proper fees to charge customers for their coverage. Insurance is all based on risk assessment, and the insurance companies understand risk better than anyone.

How Auto Insurance Rates are Calculated

Many factors go into calculating auto insurance rates. These factors include:

  • Location
  • Credit score
  • Gender
  • Age
  • Accident history
  • Type of vehicle
  • Driving record
  • Annual mileage
  • Marital status

This information gives the risk assessors an accurate picture of the customers and allows them to determine who is the most likely to have more claims. The higher risk customers get dinged with higher rates.

Whether you think it’s fair or not, that’s how they do it.

Who Gets the Best Rates?

Drivers that file the fewest claims, naturally, get the best rates. These include drivers who:

  • Are married
  • Have no moving violations
  • Live in a rural area
  • Are female
  • Are over the age of 25
  • Drive a less expensive, older car
  • Have no at-fault accidents
  • Drive a car with a better safety rating
  • Drive fewer miles annually
  • Have a good credit score

Typically, these motorists file fewer claims, therefore, cost the insurance companies less money. Such factors make these drivers eligible for lower premiums.

These characteristics don’t factor straight across the board. Though. Your credit score or marital status don’t rate as high as gender, age, or driving history does.

How to Get a Lower Insurance Rate

You can take action to lower your insurance costs. Some are more feasible than others, but all of these will help.

  • Improve your driving record
  • Have fewer accidents
  • Drive fewer miles
  • Get a car with the newest safety features
  • Increase your deductible
  • Take a driver safety course
  • Maintain a higher grade point average
  • Raise your credit score
  • Move to a rural location
  • Lower your coverage limits (be careful with this, though)

Meet with your agent. They will work with you to determine the best course of action to lower your premiums.

Always Get Multiple Quotes

With the advent of the internet, It’s much easier to obtain quotes from a lot of different carriers. Even though the insurance companies all tend to think alike, their rate can vary significantly.

Do your research, though. Some providers don’t have good customer satisfaction ratings. If you do have to file a claim, you want good customer service. Just because they offer you a cheaper rate, doesn’t mean that they will provide the same level of service.