If you’ve ever opened your annual premium bill and thought “why is my car insurance so expensive?” rest assured, you’re not alone. There are many factors that contribute to the cost of vehicle insurance, and understanding what they are and how they impact rates can help you determine if you’re getting the best value for your dollar or you could pay cheaper rates by shopping around.
Risk factors for car insurance rates
Insurance is built on accurately assessing risk, and insurance actuaries are professionals who spend a lot of time analyzing a wide variety of risk factors, and how each risk factor contributes to expenses incurred in the event of a claim.
Every accident that results in a claim produces data. From the age, type, and condition of the vehicle(s) involved, the age and experience of the driver, to the weather conditions are taken into account. This is one type of data that actuaries use to determine premiums. Some information is specific to the individual driver, such as your driving record. Other information used to determine rates applies to the broader population, such as data collected on car theft rates by state.
Less experienced drivers are more likely to get into accidents than those who have been driving for a long time — so, if you’re a new driver, your car insurance will be expensive even if you haven’t had any accidents. Here are some examples of the risk factors used to determine car insurance rates:
Your age. As noted in the example above, if you’re young, you will likely pay more for your car insurance. As you get older and gain more experience, your rates will typically go down — for a while. However, since older drivers are also statistically more likely to have accidents, when you are above a certain age your premium rates might start to increase.
Your gender. The Insurance Institute for Highway Safety’s website has a report on fatality statistics by gender, and the numbers are sobering. While the gap is beginning to narrow, many more men than women die in vehicle crashes. The report notes “for nearly every year from 1975 to 2017, the number of male crash deaths was more than twice the number of female crash deaths.”
Although this number does level off a bit with age, because men generally drive more miles than women and are more likely to engage in riskier driving behavior (e.g., not wearing seatbelts, speeding) they are more likely to face higher premiums — that is, where gender is permitted to be considered a risk factor. Some states (California, Hawaii, Massachusetts, Montana, North Carolina and Pennsylvania) don’t allow insurers to factor in gender when determining premium rates.
How many miles you drive. If your daily commute is long and you put a lot of miles on your vehicle, your car insurance will be more expensive. One of the questions an insurer will ask when you’re applying for coverage is to estimate your annual mileage. More time spent on the road means more opportunity to be involved in a crash. Tip: If your employer starts letting you work from home a few days a week or you get a new job closer to home, let your insurer know your annual miles have gone down. It could reduce your car insurance rates.
Where you live. If you live in or near an area that has a lot of vehicle theft, it will be reflected in your rates. Additionally, areas prone to strong storms can increase rates, due to claims resulting from hail damage or other disasters. Drivers in urban areas also often pay higher rates because where there are more cars, there are usually more accidents.
The type of car you drive. As with where you live, the type of car you drive can have a substantial impact on the cost of your car insurance premium. Luxury vehicles tend to be more costly to repair — and are definitely more costly to replace in the event of a totaled car — and will subsequently cost more to insure. Newer cars are usually more expensive to replace than older cars, but they also have updated safety features that make accidents more survivable for vehicle occupants. Newer vehicles also tend to have more electronic parts that can be costly to replace. All of these elements are taken into account and factor in to how much you pay for your premium.
The amount you select for your deductible. This might seem like a strange risk factor. After all, how does the amount you select to pay as a deductible become a risk? It makes sense when you view it as a risk from the insurer’s perspective — that is, the risk that they will have to pay on a claim. For example, if you pick a low deductible, such as $250, even a minor accident in a grocery store parking lot that knocks out a taillight could exceed that amount to repair and replace. That means the insurer will be required to pay on that claim. The higher you set your deductible, the less likely the insurance company will be asked to pay on a claim. So, higher deductibles on your part mean lower insurance premiums.
Your driving record. No surprise here — if you’re a safe driver with a clean driving record, your rates will be lower than someone with a stack of driving violations or claims.
These are just a handful of the factors that insurance companies use to determine premiums. Other factors that can be used include marital status, coverage limits, how long you’ve continuously carried auto insurance, or even your credit score.
A lot goes into determining car insurance rates, and the impact of some of these factors is likely why your car insurance is so expensive.
What to do if your car insurance is too expensive
If after reading this list you’re left thinking, “why is my insurance so high?” you might want to take a look at the list of companies other drivers have rated the highest on our best car insurance rankings. Find a company that other consumers rate highly and see if you can beat your rate.
Another option if you think your auto insurance is too expensive is to try using our car insurance calculator. By entering a few data points, you can see the top three customer-recommended companies and average rates for the most popular companies in your state.
Lastly, you can try an online marketplace to get multiple quotes from different companies. Use our free tool below to get quotes!
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