16 Factors That Affect Car Insurance Rates (Plus: How to Save Money)

Not sure how insurance companies are determining your car insurance rate? Here are the main factors they take into account when deciding how much you’ll pay.
Last updated May 13, 2021 | By Larissa Runkle
Factors That Affect Car Insurance Rates

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If you’re looking at a recent bill and wondering why your car insurance went up, you’re not alone. Although auto insurance rates naturally tend to increase from year to year (by some estimations at a whopping 6% in recent years), there are other reasons car insurance costs can go up too.

In order to help you wrap your head around the reasoning for these seemingly random changes, we’ve compiled this list of the 16 factors that affect car insurance rates — plus we’ve included details on how to save money on car insurance.

Because car insurance premiums are mostly based on risk, many of the factors that go into determining the cost of your auto coverage has to do with how risky an insurance provider believes you to be. Surprisingly, this sometimes has less to do with your actual driving record and more to do with your profile — things like how long you’ve been driving, where you live, how much you drive, etc.

So whether you’re a new driver shopping for car insurance or just looking to switch your car insurance to something more affordable, here are 16 of the top factors insurance companies look at when determining what they charge you.

In this article

Age

Unfortunately, age isn’t just a number when it comes to auto insurance companies. Older drivers with more experience tend to get into fewer accidents. So the older you are, the less you’ll likely pay for coverage. The same can be said in reverse. Very young drivers or adults sharing a policy with drivers under the age of 25 can expect to pay higher premiums on their auto coverage.

If you’re a young driver or plan to add one to your policy, keep in mind that some companies offer car insurance discounts for students who get good grades or drivers who take recognized driver training courses.

Gender

Women tend to pay less for car insurance than men, as the data shows they are significantly less likely to get into a serious auto accident or be involved in a DUI-related incident. This might sound strange, but the insurance companies are simply going off historical data.

Given a male driver and female driver with otherwise similar driving histories, a woman is likely to pay less for coverage than a man.

Where you live

As previously mentioned, where you live is one of the factors that affects your car insurance rate. Because urban areas have higher rates of accidents, theft, and vandalism than more rural areas, you’re likely to pay more if you live in a highly-populated area.

Where you park your car (on the street versus in a garage) can also make a difference in how much you pay for coverage, as parking your vehicle in a less secure location puts you at an increased risk of something happening to it.

Marital status

Your marital status can also affect your car insurance rates. Because married couples are often seen as more financially stable and also safer drivers, these individuals end up paying less than single, windowed, or divorced drivers.

Credit score

That’s right, your credit history actually plays a role in how much you end up paying for car insurance. Most insurance companies use a variation of your credit score, known as a credit-based insurance score to determine the likelihood of you filing an insurance claim. This score is derived from certain aspects of your credit score. So if you improve your credit score, the better your insurance score will be, and the less expensive your insurance is likely to be as well.

Driving record

This one might sound obvious, but your driving record is one of the easiest ways to determine how much your car insurance will end up costing you. Those who can demonstrate good driving habits by having clean driving histories will likely pay way less for coverage than those with a history of speeding tickets, traffic violations, accidents, or DUI-related events.

because car insurance companies rely heavily on your past history to determine the likelihood of future events, the more pristine your driving history, the less you’ll end up paying for insurance.

Years of driving experience

Another factor that affects your car insurance rate is the number of years you’ve been driving. Although this may generally be associated with your age, it also may not if you started driving later in life.

Regardless, the number of years you’ve been driving safely is a huge factor for insurance companies when determining how much to charge you for coverage, and the longer you go with a clean driving record, the less you’ll end up paying for coverage.

Insurance history

Auto insurance companies will also take your insurance history into account when deciding on the cost of your auto insurance premium. Because those who are continuously covered are seen as less of a risk than drivers with gaps in coverage, you can expect to pay a higher premium for your car insurance if you have those gaps. This holds true even if the gaps in coverage are short and for perfectly good reasons, such as traveling abroad or moving to a place where you don’t have a car.

Claims history

Much like your driving history, insurance companies also look at your claims history when coming up with the rates they offer you. As previously mentioned, this is because insurance companies offer lower rates to drivers they perceive as less likely to file insurance claims. Basically, if they determine you are likely to cost them less money, then they’ll charge you less money. Therefore if you have a history of filing claims, this may impact how much you end up paying for your auto coverage.

Annual mileage

How far you drive is another factor that can affect car insurance rates. Those with longer daily commutes or those who drive longer distances throughout the year can expect to pay more for car insurance coverage. The more you drive, the more likely you are to get into an auto accident.

Vehicle use

Much like the distance you drive, how you use your car can also affect the coverage rates you end up paying. For example, those who use their car less, say for just a weekly trip to the grocery store, will likely pay less than those who drive their car regularly on long business trips.

For this reason, coverage for personal-use vehicles tends to cost less than for cars being used for things like business or ridesharing. If you do plan on using your car for work or to work as a rideshare driver, be sure to get the proper coverage and expect it to cost you a little more.

Type of vehicle

With some cars being more prone to vandalism and theft than others, it’s no wonder insurance companies also take your vehicle type into account. Another reason you might end up paying more for coverage is if your car is worth a lot of money, as this will cost more to insure than a cheaper baseline-model car. Replacement parts for luxury or sports cars cost the insurance companies more than less expensive vehicles.

The size of your car and its safety rating are other factors that can affect car insurance rates. If you want to pay a better rate, then your best bet is to get a relatively affordable car with good safety ratings.

If you have a loan or lease

You may also end up paying more for coverage if your car is leased or if you took out a loan to pay for it. While insurance companies don’t necessarily charge you more themselves, the lienholder might require you to have more coverage while driving what it considers to be its car. Paying off your loan and owning your car outright is another way to ensure you get a better rate on your car insurance.

Level of coverage

Depending on the type of coverage you choose, you may end up paying more for your insurance. For example, comprehensive coverage will cost more than collision coverage alone. In addition, the higher the amount you want covered, the higher your premium will be.

Although most states have set minimum insurance standards, you can save money on your car insurance by not purchasing any extras you don’t need. Start by taking a look at how much car insurance you need for your driving habits and in your state, then go from there in deciding whether you need to add any extra coverage.

Size of deductibles

You might think selecting a lower car insurance deductible will save you money in the event you get into an auto accident, but whatever you don’t pay in a deductible you’ll likely end up having paid already in the form of a premium.

When it comes to selecting a deductible amount, you should pick one you can afford while also keeping in mind that a higher deductible typically correlates to a lower premium. The only time you’ll be responsible for paying a deductible is when you file a claim. So you should also consider the likelihood of that happening when deciding on these details in your car insurance policy.

Discount eligibility

No matter what insurance company and level of coverage you choose, you may be eligible for certain car insurance discounts. For example, some insurance providers offer discounts to young drivers for being good students because this shows responsible tendencies.

Other discounts are given for drivers who have various safety features on their cars or if the policyholder purchases multiple types of insurance (for example homeowners and auto) from the same insurance provider.

How to shop for the cheapest auto insurance

Now that you know some of the factors that affect car insurance rates, you may also be seeing how to save money on car insurance. In fact, there are a lot of ways to save money on your auto premiums if you take the time to gather the best car insurance quotes from different providers and examine the details.

You can talk in person with an insurance agent or shop for policies online. Either way, the first step is to figure out how much coverage you need and then compare various providers that offer that type of coverage. When doing a side-by-side of insurance quotes, be sure you’re comparing apples to apples, which the coverage is the same on all the policies you’re looking at.

Because most insurance policies can only be changed without a fee when your policy is up, it might be worth learning that exact date if you plan to switch. If you’re really unhappy with your current insurance provider, ask about its cancellation policy to see whether it's worth making the switch sooner. Sometimes it can pencil out that switching to a less expensive policy still costs you less overall.

Bottom line

Now that you know a bit about the factors that affect your car insurance rates, you can use this information to shop for the best policy for your needs. Start by determining what you want, then get a few quotes to compare before making any decisions. Take the time you need to find coverage that is affordable and will make you feel more secure on the road.

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Author Details

Larissa Runkle Larissa writes for FinanceBuzz and divides her time between a cabin in the San Juan Mountains and traveling in a van. She enjoys writing about travel, debt relief, personal loans, and mortgages. Her work has been featured on MagnifyMoney, LendingTree, and Realtor.com. Outside of finance and real estate writing, she’s also at work on several fiction projects. When away from the computer, you’ll find her reading, exploring local trails, and climbing rocks.