How Insurance Companies Calculate Car Insurance Price

By: David Schneider, Car Insurance Expert
CheaperCarInsurance.com

Like most Americans, you’ve probably wondered what goes into car insurance price. If you drive a red sports car, why does your insurance rate go up? Why is your rate different from your twin brother’s rate?

There are actually many factors that car insurance companies use to determine car insurance price, and each company has a slightly different formula (that’s why you’ll get different rates when you use our online Quote Generator).

Here are a few of the elements that make up the car insurance price equation:

• Your coverage
• Your driving history
• Your credit history
• Where you live
• Your sex and age
• Discounts you are eligible for
  • • Good driver discount
    • Military or federal employee discount
    • Air bag or anti lock brakes discount
    • Good student discount

  Coverage

  Each policyholder can elect what type of coverage amounts she wants for comprehensive, collision, and liability, as well as what deductibles she wants to pay. She can also elect for options like rental car reimbursement, emergency roadside assistance and gap insurance. All of these factors will change her car insurance rate.

  Driving History

  Not all drivers are created equal. If you have an accident (or five) on your record, as well as several traffic violations, unfortunately your car insurance price will be higher than that of someone with a clean history of driving. Car insurance companies check with the Department of Motor Vehicles to see what your history looks like, so there’s no escaping this.

  Credit History

  It may seem odd, but your credit history can actually be a pretty good indicator of whether you will be in a car accident or not. Studies show that the lower the credit rating the higher the risk of a car accident. If you have a low credit score, you may pay more for car insurance. If you’re working to pay off some debt, you may see your rate come down over the course of some months or years.

  Where You Live

  Even where you live can affect your car insurance price. Living in rural Arkansas, you are less likely to encounter traffic than you would be living in New York City, so your risk of getting in an accident is lower. Lower risk means you’ll pay less for your insurance. Also drivers who live in larger cities have an increased risk of their car being stolen or vandalized.

  Your Sex and Age

  The myth about women being bad drivers is just that: a myth. Car insurance research shows females are less likely than males to get into accidents, so they pay less for car insurance. The 16 to 21 year old demographic also pays as much as double for their car insurance price than any other age group, so age also contributes to how much you pay for car insurance.

  Discounts

  The best part about looking for car insurance prices online is finding discounts. You may actually qualify for more than one, like:

  Most car insurance companies offer a variety of discounts to drivers, so your car insurance rate will be positively affected by whatever discounts you may be eligible for. Expect to save 5 to 15% on average with discounts.

  Find Your Car Insurance Price

  Now that you understand the different elements that affect how an insurance company determines your car insurance price, why not get a custom quote to see who offers the best deal on car insurance right now? Just click the Get a Quote button at the top of this page and enter your info to get instant quotes delivered to your inbox.

  Posted: January 09, 2010