When it comes to calculating insurance premium, every insurance company has a complicated rating system that works behind the scene. The goal of this system is to foresee risk as accurately as possible and avoid taking unnecessary risks involved in insuring someone.
However, there are some factors that make for significant differences in premiums among auto insurance buyers. Below are a list of factors the insurance companies normally take into consideration.
1. Credit History or Insurance Scores
This is one of the most important thing to get a good premium. It is closely related to your credit score. Improving this score can be one of the most essential factors to what you will pay for insurance going forward. States that do not allow the use of Insurance Scores: California, Hawaii, and Massachusetts.
2. Claims History
Insurance companies share your claims history. So when you make a claim in one insurance company and want to transfer your policy to another company, they will look at your claim history in the past. Most insurance companies have rating system that favor customers who do not have claims, and add surcharge or remove discount for those who do. Claims frequency is more important than driving record, which will be discussed below.
3. Driving Record
Driving record is a very apparent factor when considering how much you should pay for the insurance. If you are a responsible and careful driver with little to no violation, it’s safe to conclude the insurance companies will like you. After all, nobody likes troublemakers.
4. Continuous Insurance Coverage
Many of us will agree that it’s more difficult to get your car insurance for the first time than after having the insurance for a few years. The key player here is the continuous insurance coverage. Insurance companies want to see you have a good record of maintaining insurance coverage. This generally means you are a very responsible person, who pay bills on time and maintain a good relationship with the insurance companies.
5. Garaging Location
Believe it or not, your garaging location makes a big difference in your premium. Even though you and your friend live in the same area just a few blocks away, you two can have very different rates. Maybe the block near his house is a busier intersection with higher accident rates, his premium will be higher because of that.
1. Youthful Operators
If you have a teenager living in the household, even though he may not need to use the car, your premium will probably go up. You may argue with them, but insurance companies do take every potential risk into account. Say you or someone in your family has an emergency, guess who will drive the car to the nearest pharmacy? Your teenager. So insurance companies have to take that rare situation into consideration.
Believe it or not, gender has some impact too. It’s not a huge impact, but some large insurance companies use the gender and age combination to calculate the risks. It is especially true for teenagers. Generally speaking, boys pay more than girls especially during the teen years.
3. Years of Driving Experience
Driving experience has a direct impact on the risks involved in operating a vehicle. Most insurance companies even add an “inexperienced driver surcharge” to those with less than 3 years driving history. The reason being they anticipate to pay more for the inexperienced drivers. But the good news is that after 3 years, this surcharge will be removed, and hopefully by then, you have maintained a good driving record, so your rate should decrease.
4. Vehicle Make/Model/Submodel
Your insured vehicle matters! With cars that are safer, cost less to repair and have anti-theft devices, you probably will pay less for the insurance. Insurance companies have data on every Make, Model and even Sub-Model of vehicles. You may think you have a new car and automatically it will qualify for a lower premium. That’s not always the case, believer it or not. Maybe it’s an expensive car, so it costs a lot more to repair. Insurance companies have to charge higher premium to justify that cost.
5. Coverage Limits – Comprehensive & Collision Deductibles
Choose the coverages wisely that fit your needs. Generally, the better coverages you have, the more money you will pay. However, this is not a significant increase in an extra “layer” of coverages like liability, uninsured motorist and personal injury protection. What you need to seriously consider, though, are the comprehensive and collision coverages. When you change the deductible on these two, you will see a significant differences in premium.
Less Important Factors:
Not all of the companies adjust rates based on how risky your occupations are, but a few of them do. So be prepared to answer that question strategically.
There are some companies that will provide a break on premium based on your education level. Those levels may include; no high school, high school, some college, college degree, masters or PhD completion.
3. Previous Liability Limits
Higher liability limits is a good indicator that you are a very responsible person for other people and their property. So there are some companies that will “reward” you when you carry a higher liability limits in the previous polices.
4. Marital Status
Most companies don’t consider it at all. Even for the few companies that do, marital status will not play a significant role, and is usually combined with age and gender for consideration.
5. Vehicle Use
Insurance agents often ask you how you use the insured vehicle, and you can answer either commute or pleasure use. It has a decreasing importance in today’s insurance market.
6. Miles driven annually
Some companies will provide minor discounts for low mileage and increase premium slightly because of longer commute. But again, this is not a major factor with many insurance companies.