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Determining Car Insurance Premiums |
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Written by Fred McConnell
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When deciding whether to sell you insurance and determine what your premium will be, car insurers take into account a number of of considerations to determine how much of a risk of loss you pose to them. Much like credit bureaus, insurers take into account various pieces of information about your life and then assign you an insurance risk score.
The process of assessing the risk a potential insured poses to an insurer is known as underwriting. The name comes from the historic practice of famed insurance market Lloyds of London, which got its start insuring sea-faring cargo ships. Insurers of the ships would literally write their names on a document under where risk information concerning the ship and its journey would be printed.
In the modern car insurance market, underwriters use databases of information about driver demographics and your own personal information to make a determination of whether to sell you insurance and how much to charge you for it. The more likely it seems that you'll get in an accident or that your car will be damaged in some other fashion, the lower your insurance risk score will be and the higher your premium will be.
In general, one of the best ways to get a good rate on car insurance is to be perceived as a responsible person. Folks who have good credit, a good driving record and have good employment records are more likely to get a favorable rate on their monthly insurance premium than those who don't.
When you apply for car insurance with an insurer, you'll be asked a series of questions about your life that your insurer will then verify and use to determine whether to offer you a policy and how much to charge you for it. Here's a list of factors insurers look at when determining premiums for insureds:
- Age: Statistically, drivers who are less than 25 years old run a higher risk of being involved in an auto accident than older drivers. If you're between the age of 50 and 65, you're statistically in the safest group as determined by age. Drivers over 65 begin to be increasing risk. Because of the age factor, younger drivers on average tend to pay higher car insurance premiums then older drivers.
- Coverage: The more coverage you purchase, the more you'll pay for it. When you buy add-ons like medical coverage and towing and rental coverage, you put your insurer potentially on the hook for a greater liability if you get in a wreck. Because of the greater liability, you end up paying a higher monthly premium.
- Driving record: Perhaps the single most important factor in determining whether to allow coverage and how high the premium will be, insurers use your driving record as a prediction of future behavior. If you have a lot of speeding tickets, moving violations or accidents on your record, your insurer will likely charge you a higher premium than it would for insureds with spotless records. Once you get a ticket or have an accident, it generally is considered chargeable by your insurer for three to five years.
- Deductible: If you choose a higher deductible, you'll pay less in monthly premiums, but will have to cough up more up front if you get in a wreck. Conversely, with a lower deductible you'll pay less if you file a claim, but more in monthly rates.
- Address: Residents of heavily-populated urban areas are considered bigger risks than residents of sparsely-populated rural areas. The logic is simple -- the more cars that are on the road where you live, the more likely it is that you'll bump into one of them. Some insurers also charge higher premiums to residents of high-crime areas, as they see this as an elevated risk that your car may be stolen or vandalized.
- Usage: If you have a long communte or if you use your car for work, it's likely that your insurer will charge you a higher premium as the more often you're on the road the more likely it is that you'll get in an accident.
- Gender and marital status: Women tend to be safer drivers than men, and married people also are considered to be safer drivers than single people.
- Make and model: Some vehicles are considered better insurance risks than others. Coverage for an expensive Italian sports car is likely to cost more than that for a family sedan because the sports car costs more to fix or replace, and is more likely, on average, to be driven at high speeds by a risk-taking individual.
- Occupation and education: Some careers are considered by insurers to be riskier than others in terms of car insurance, and better educated people are percieved by insurers to be less of an insurance risk than people with less education.
When shopping for car insurance, be aware that insurers use these factors to make coverage and premium determinations. If you'd like to get a lower rate, consider changing the factors that you can control such as your driving record, deductible and car model to get better rates. |
