How Do Car Insurance Companies Determine Insurance Rates?

By Mike Anderson Posted in Car Insurance News

What  Car Insurance Companies Look For

There are several different factors car insurance companies consider when determining what premiums should be. While most companies have an “average” for their premiums, the rates are really determined on a per person basis. Basically car insurance companies measure your “risk factor.” This could be a measure of uncontrollable factors, such as age and gender, and controllable factors, such as driving record, type of car, and credit score.

The purpose of car insurance is to provide financial protection in the event of an accident or other issues predetermined in your policy. Car insurance companies determine the probability of you filing a claim against your insurance policy. If you have a low risk of filing a claim then your insurance rates will be lower, if you have a high risk of filing a claim then your rates will be higher.

Factors They Consider

The uncontrollable factors include your age, sex and marital status. Married women between the ages of 25 and 40 have the lowest insurance rates of any age/sex group. Men in their teens and early twenties have the highest rates of any age/sex group. This is all based on previous claims filed. Since men in their teens and twenties typically file more claims than married women between 25-40, then insurance for the young males is higher. Insurance companies also look at your driving record, type of vehicle to be insured, credit score and previous insurance status. Your driving record is the biggest factor in how much you’ll pay in insurance. Since insurance companies measure your risk of filing a claim, your driving record is very important. If you have a history of accidents, including ones that aren’t your fault, or a history of filing claims for various reasons then you will pay a higher insurance rate regardless of your age/sex. What kind of car you are insuring is also important.

An older model used car will be cheaper to insure than a brand-new luxury car because it would cost more to replace a new car then the older car if it was totaled. Domestic versus imported is another factor; the availability of replacement parts is important. Cars with a manual transmission are more expensive to insure then cars with an automatic transmission. Your credit score can also affect your insurance rates. A good credit rating proves to the insurance company that you will be less likely to file false claims and more likely to pay your premium on time versus someone with a poor credit rating. Also, any lapse in insurance between policies could jack up your insurance rate.

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