Car insurance companies consider multiple variables when determining a driver’s rate. Pricing factors vary from company to company, a quote with one can be significantly cheaper than another regardless of the coverage provided. Generally speaking, the lower your perceived risk of getting into an accident, the better your rate will be. Here are nine factors car insurance companies use to determine your perceived risk, and your rate.
1. Your driving record
All traffic violation and at-fault accidents you have taken part in are recorded in your driving record. Depending on the state you live in, car insurance companies may consider marks on your record for as far back as five years. Continuous accidents or traffic violations will result in more expensive rates. An extensive history of these incidents or a DUI/DWI conviction might result in insurance companies denying you coverage all together. Your only option then would be non-standard car insurance, or buying from your state’s risk pool, which are reserved for the riskiest of drivers.
While your driving record is set in stone, continued safe driving and practicing of good habits can eventually override any past misdeeds, as again, only your record for the past three or five years is taken into consideration when measuring your level of risk.
2. Your credit
Oftentimes, car insurance companies will make use of credit-based insurance scores when deciding what rates to give. These are different from the usual FICO-style credit scores, though it takes them into consideration, and are not available for the public to see. It all traces back to a study by the Federal Trade Commission that saw a correlation between a driver’s credit and their likelihood to file a car insurance claim.
Insurance companies want to trust their clients, and a history of missed payments and amassed debts are qualities of a risky individual. Taking care of your credit will improve your internal credit-based insurance score, and in turn, get you cheaper rates.
3. What type of of coverage you want
Yes, more comprehensive coverage means a cheaper insurance policy, but don’t fall into the trap of making a choice based solely on price. You might miss out on critical coverage you actually need! Make it a rule, always buy above your state’s minimum car insurance requirements, as a lackluster insurance policy at the wrong time will only lead to financial disaster.
However, you don’t have to be an expert, that’s what your insurance agent is here for. Your agent will analyze your situation situation and income, give you multiple options, but it will be up to you to make the final decision.
4. Your car insurance deductible
In any insurance policy, a deductible is the amount you pay out of your funds when you file a claim for car repairs. This is where the question falls on you, how much risk do you want to take? The higher the amount you are willing to gamble with your deductible, the lower the amount the insurance company would need to pay themselves in case of an accident, leading to a cheaper rate for the policy.
5. Your car insurance history
Newer drivers will have a harder time finding cheaper car insurance rates if this is their first policy. This is because insurance companies won’t have a history to get a better read on you and evaluate your risk.
The same applies if for some reason or another, you didn’t have car insurance coverage for an extended period of time. A “coverage gap,” as it is called, suggests a previous carrier may have canceled your plan due to lack of payments, or you might have just had no access to a car and so you didn’t need to have coverage. Regardless of the reason, a coverage gap suggests a riskier driver, causing rates to grow more expensive
6. Your car itself
The car you own in itself is a huge factor insurance companies take into account when determining a rate for you. If other drivers with the same model as yours have often gotten into crashes or traffic violations, you can expect a higher rate. This applies to other variables: theft rates and payments made for comprehensive claims paint a general picture of what kind of risk a company can expect from you, given that you own a particular car.
7. How old you are, and how much driving experience you have
This goes hand in hand with your car insurance history. The newest drivers are teenagers who are just learning how to drive, which naturally brings about a hefty amount of risk. Older drivers are three times less likely to be involved in a fatal crash than drivers still learning between the ages of 16 and 19, and thus, younger drivers will also face the most expensive policies.
8. Where you live
Your exact location factors into the rates you are given tremendously. Drivers who live in areas with extreme weather conditions, and significant crash and crime rates, will face more expensive policies. Generally speaking, residing in a metropolitan area carries a higher level of risk than living in a suburban area, due to lower levels of safety. Additionally, costs of healthcare, car repairs, and frequency of traffic accident lawsuits in your city will be taken into account when determining your rates.
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