Estimating rates: What you need to know

Auto insurers penalize inexperience rather than age. Of course, the vast majority of inexperienced drivers are teenagers.  Rates for 16-year-olds can double or even triple their parents’ car insurance annual premiums. 

The less experienced the driver, the higher the rates.  Among drivers with clean records and no accidents, no other factor changes rates more.

Statistically, inexperienced drivers crash – a lot – and so they are the riskiest category of drivers to insure.  (See “Why teen insurance is so expense: They’re bad drivers”) Car insurance rates reflect this high risk.

The inexperience penalty drops slowly until about year 10. As an example, this is what the inexperience surcharge for basic bodily injury liability coverage looks like at one California car insurer during the first decade of driving:

If you keep a clean record after age 25, rates typically stay relatively stable until you become a senior driver, when crash rates go up and premiums begin to rise again. 

Read more: What a teenager does to your car insurance rates

Where you live matters, if state laws allow insurers to use that criteria -- and most states do. 

If you live in a highly populated urban area, congestion, accidents and insurance claims are more prevalent.  Living and driving in a metro area will make your rates higher than if you live in a rural area, where having an auto accident is less likely.

Car insurance companies look at factors such as the rate of stolen cars in your area, and the number of cases of vandalism, claims and fraudulent claims.  All of this helps insurers discern the risk associated with insuring you and your car in that ZIP code, whether you ever have made a claim or not.

All other factors equal, your ZIP code can change your rate by hundreds of dollars.

Read more: How your ZIP code drives up your car insurance

Auto insurers track which cars have the most wrecks and the worst injury records. Those factors impact the cost you pay for liability insurance -- which covers the damage you cause to others.

Insurers also know which cars are expensive to buy, expensive to repair or more easily stolen. Those factors drive up the cost of collision and comprehensive coverage, which repairs or replaces your own car.

The calculations about the risk of a certain car are made independently. For example, if you are an inexperienced driver in a car with a poor claims record, you are penalized twice. A more mature driver in the same car would pay a surcharge for the car, but not one for inexperience.

Insurers can also choose not to cover certain types or brands of cars. Some won’t insure a lifted pickup truck, for example, or a kit car or certain exotic cars.

Read more: If I have a red car will it cost more?

Married couples have been found to have fewer accidents and claims than single drivers do

Rates can be from 5 percent to 15 percent lower for married couples just because of their marital status. But there are also other discounts married couples can look forward to when they combine their policies, such as a multicar discount, or a multipolicy discount if they have their a  renters or homeowners policy with the same insurer.

An insurer considers you single if you have never been married, or are widowed or divorced.

Read more:  Does my auto insurer need to know about my divorce?

Your driving record is paramount to your car insurance company.  Safe drivers get a discount from standard rates for keeping a clean driving record.  On the flip side, individuals who have a moving violation (speeding or a DUI, for example) or an accident on their motor vehicle record are more of a risk and can face a surcharge on top of standard rates.

If you have enough violations or accidents, you can become uninsurable according to some car insurance companies’ underwriting rules. For example, some insurers reject anyone with four or more chargeable accidents in three years, or more than three DUIs in seven years, or more than 15 points on the driver’s motor vehicle record.

In general, a minor violation such as a speeding ticket can boost your rates 20 percent to 40 percent.  You may not be surcharged for the actual ticket, but will lose your good-driver discount.  If you have a major violation like a DUI, your rates can go up 100 percent or more.  The more risk you appear to be to your auto insurer, the more you will pay.

Read more:  What is considered a minor driving infraction and what is considered a major infraction?

You car’s annual mileage is a rating factor for many car insurance companies.  The less you drive, the less risk you have of being in an accident.  Also, how far you drive for your commute lets the insurer know what kind of risk you are during the congested, high-risk hours.

You insurer can also use the length of your commute to determine if you head into a metro area from your rural or suburban home.  If you live outside of Los Angeles, but your commute is 30 miles, your insurer can predict that although your local area is low risk, your commute into the heart of a very populated metropolitan area pushes your risk factor much higher.

Read more: What’s the difference between commute and pleasure?

Insurance companies routinely check your credit rating as part of your application process.  (Some states do not allow use of credit scores in calculating rates.)

Credit scores help the insurance companies assess the risk level of a potential customer.  Research has shown that those with lower credit scores (typically under 600) are more likely to file claims, file exaggerated claims, or even commit insurance fraud.

Those with low scores may face a surcharge. Rates for those with higher scores are typically unaffected.

Your credit score can also affect how an insurance company allows you to pay for your policy, since statistics show that people with lower credit scores are more likely to miss a payment. Customers with very poor credit scores may be required to pay the entire premium for the six-month policy up front. Customers with low credit scores sometimes won’t qualify for monthly billing, or they may need to pay a large percentage of the policy up front and the remainder monthly.

Read more:  Why do insurance companies require a credit check?

The more coverage you get, the more you will pay  If you get a bare-bones liability policy that covers only what the state requires, your car insurance costs are going to be less than if you bought coverage that would repair your own car, too.(See  “This is as cheap as insurance gets.”)

Liability coverage tends to cost more because the amount the insurance company risks is higher. Coverage for collision and comprehensive insurance is limited by the replacement cost of the car itself. But medical bills and multiple-car accidents could push a liability claim into the hundreds of thousands of dollars.

If you don’t have enough liability coverage, you could be sued for the difference by anyone you injure.

Comprehensive and collision damage is affected by the deductible you choose. The higher the deductible, the less the insurance company will have to pay -- and the lower your rates.

Medical coverage, such as uninsured motorist bodily injury, medical payments or personal injury protection (PIP), will cause your rates to go up. Without some kind of medical coverage, if you don’t have health insurance elsewhere, you might not be able to pay for treatment if you are injured in an accident you caused.

Read more: What coverages should I choose? Car insurance calculator

Insurance companies must follow state laws, but within those laws they price coverage based on their own underwriting rules and guidelines.  One insurance company may look at your driving record for five years, another only for three.  The surcharge for a speeding ticket may raise your insurance by 10 percent with one carrier but only 5 percent with another. 

If you are unsure of what coverages you need, talk to an agent, or use our insurance coverage calculator, and determine what is right for your situation.  Then shop around. Make sure you are comparing apples to apples – the same coverages with each insurer -- and check the reliability and financial stability of the insurance carrier.

Finally, make an informed decision about who you want to be insured with for the best price and protection. Don’t let a small savings drive you away from an insurance company you know and trust.

Read more:  Car insurance: Save the big money first