According to a recent study, full coverage vehicle insurance costs an average of $1,633 a year in the United States. That equals around $140 per month; however, this number can fluctuate based on several contributing factors.
But to the general consumer, how is car insurance calculated? What factors do the insurance companies take into consideration? And most importantly, are there steps you, as the consumer, can take to ensure a lower monthly premium?
The cost of car insurance can be a significant reason why many Americans choose to remain uninsured. This forces them to accept the risk of having an accident while without insurance.
If this is the case for you, or you want to know how to reduce your monthly premiums, keep reading as we discuss everything about how a car premium is calculated.
How Is Car Insurance Calculated?
Several factors contribute to how car insurance is calculated. While some are within your ability to affect and change, others are out of your control. Knowing what you can do to ensure reduced premiums can save you hundreds of dollars a year.
In the Control of the Driver
Several personal factors are, to some extent, within the control of the driver to change or alter. These include choices like whether you are married, where you choose to live, as well as how you pay your bills.
Marital Status
Somewhat surprising to some, whether you are married can affect your monthly car insurance premiums. Larger auto insurance companies often have reduced rates for married drivers than their single, divorced, or widowed counterparts.
This is due to survey-gathered statistics indicating that married couples reportedly behave more cautiously and file fewer claims.
Address
Arguably one of the most significant factors contributing to your premium calculation is where you choose to live. As a result, premium rates will vary widely by state, ZIP code, and even neighborhood.
For example, Louisiana has been surveyed to be the most expensive auto insurance state, with the average annual premium sitting at $2,724. Conversely, Maine has been found to have the cheapest quote premium at $965 per year, followed closely by Ohio and Idaho.
Where you park your car overnight and during the day can also significantly affect your charged rate. For example, parking your vehicle behind a locked gate or in a garage can contribute towards a lowered premium.
Occupation
Based on how likely they are to file claims, certain occupations are subject to higher car insurance premiums. Such jobs include delivery couriers, car valets, journalism, and entertainment. This can have nothing to do with the job itself but the risks associated with each profession and their likelihood of filing a claim.
You could also be subject to higher premiums if you’re unemployed. This is because you’re more likely to be on the road while job searching, and often in unfamiliar places.
Credit History
Being reliable by paying bills on time can go a long way to improving your monthly premium rates. However, this is one factor you might not have complete control over.
Insurance companies in several states use credit-based insurance scores to determine premiums rather than a regular credit score.
This differs from a regular credit score in that a credit score aims to estimate whether you’ll be able to repay your debts. In contrast, a credit-based insurance score looks at the likelihood you will file an insurance claim.
It’s worth noting that some states such as Hawaii, Michigan, California, and Massachusetts have banned insurers from using credit scores to determine monthly premiums.
Driving Record & Experience
Naturally, your driving record plays another significant part in calculating your premium costs. Your driving record includes your car accident history, any traffic tickets you’ve received, and any violations you’ve incurred, like a DUI.
Surveys have found that something like a speeding infraction can increase premiums by an annual $355, while a DUI conviction can increase your car insurance premiums by up to 300%.
The amount of years you’ve been driving also contributes to how much you are charged. If you’ve been driving for many years, there is a high likelihood you’ll pay lower insurance rates than someone who only recently acquired their driver’s license.
Working towards having a clean driving record, a good credit history, and making good life choices can all play a part in getting quotes with reduced rates.
Out of Control of the Driver
Knowing what factors you can affect can go a long way in bargaining for lower premiums. However, a couple of factors are out of the driver’s direct control that goes into determining a price.
Age
While somewhat in your control, sometimes you need insurance immediately and can’t wait. This will mean that your premiums are based on your immediate age at the time of taking out the insurance policy.
Younger drivers are considered less experienced and, as a result, pay higher premiums. These premiums are reduced when you’ve been driving for a long time are no longer considered a “young driver.”
Unfortunately, they start to increase again as you turn 65 and older due to applying new risk factors.
Gender
While this is not something everyone has control over, in several states, insurance companies can charge different rates depending on if you are male or female. Reportedly, men tend to face higher rates during their youthful years, whereas women tend to face higher rates in their older years.
However, this practice has come under fire recently with an ongoing discussion about gender-based price discrimination and its fairness. As a result, some states are beginning to forbid this practice.
Education
Another factor that can be considered within the driver’s control, the truth is not everyone has finished their studies at the time of insuring their vehicle. Depending on your education level, you can potentially get reduced fees if you have a college degree or higher.
However, this is also starting to be phased out as more states ban this practice due to discrimination.
Other factors not listed here include:
- How much you drive
- Any auto insurance claims already filed
- The type of car, its safety features, and the trim
- Whether you own, finance, or lease your vehicle
Find the Best Auto Insurance Deals
Now that you’re no longer asking, “how is car insurance calculated?” you can apply some of the advice we’ve provided. Maintain a clean driving history and pay all your bills on time, and you’ll be paying lower car insurance premiums in no time.
If you’re needing affordable insurance, we at Treads Insurance compare prices from over 40 insurance carriers. Start finding your best premium rates and begin saving today.
