16 Factors That Affect Car Insurance Rates and How to Lower your Premiums

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, there are other reasons car insurance costs can go up too.

Car insurance companies use your risk level to determine your premiums. Of course, your driving record plays a role (those two speeding tickets won’t help), but so do other factors like how long you’ve driven, where you live, how much you drive, and the type of car you drive.

I know, it can be overwhelming to determine what will help or hurt your car insurance rates, but I’ve laid out the top 16 factors that affect car insurance rates to help. If you’re like me and wondering how to save money on car insurance, keep reading to learn more.

Age

Car insurance is the one time that you’ll be grateful there are more candles on your cake each year. That’s because 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. Teen 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, I encourage you to look for companies that offer car insurance discounts for good grades or new drivers who take recognized driver training courses.

Gender

Women tend to pay less for car insurance than men, because studies show that more men than women die each year in motor vehicle accidents and are more likely to take risks while driving. While this may not pertain to you individually, your gender automatically puts you in a premium category based on historical data.

This means in a situation with 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

Insurance companies base your premiums on where you live because some areas are riskier than others for heavy traffic, car accidents, and theft or vandalism. People who live in urban areas usually pay higher premiums than drivers in rural areas because of the higher population and risks.

Insurance companies also pay attention to where you park your car. If you park on the street daily, it’s at more risk of damage or even theft. But if you park in a secured garage, there’s more protection and less risk, leading to lower premiums.

Marital status

Your marital status can also affect your car insurance rates because some insurance companies believe married couples are more financially stable and also safer drivers. This means these individuals may pay less than single, windowed, or divorced drivers.

Credit score

I know this sounds crazy. What does your credit score have to do with your driving habits?

There are some correlations between the two. Insurance companies use your 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, such as your payment history and how much you owe. Insurance companies believe that people with better financial habits will be a lower risk on the road.

This means that if you improve your credit score you’ll have a higher insurance credit score and potentially have lower insurance premiums.

Note: California, Hawaii, and Massachusetts do not allow the use of your credit score when calculating car insurance rates.

Driving record

Your driving record plays an integral role in your car insurance premiums, as you likely guessed. If you have a clean driving history, you’ll have lower premiums than if you had multiple moving violations, DUIs, or accidents that you caused.

Car insurance companies use your driving history to determine your future habits. While one or two mishaps may not cost you a lot, if you repeatedly have issues with driving, you’ll likely get higher premiums or it may be hard to get insured.

Years of driving experience

While age and driving experience seem to go hand-in-hand, not everyone gets their license at age 16. The longer you’ve been driving, the more chances you have to show a clean driving history. Even if you had a few mishaps in a row a long time ago, but have had a clean driving record for the last few years, you may get lower premiums than someone with less experience.

Insurance history

Auto insurance companies look for continuous auto insurance coverage. Unless you are a new driver, insurance providers see gaps in coverage as an indicator of higher risk. You can expect to pay a higher premium for your car insurance if you have any 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

Because insurance companies base their premiums on risk, they pay close attention to your claims history giving 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 increase 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. People with longer daily commutes or those who drive longer distances throughout the year can expect to pay more for car insurance coverage. This is because insurance companies believe that the more you drive, the more likely you are to get into an auto accident or have reason for a claim.

Vehicle use

Much like the distance you drive, how you use your car can also affect the coverage rates you pay. 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 used for things like business or ridesharing. If you do plan on using your car for work or you live in one of the best rideshare markets, make sure you have proper coverage and expect it to cost you a little more.

Type of car

The make and model of the vehicle you drive plays an important role in your premiums. Some cars are more prone to vandalism and theft than others, and the safety ratings on every car differs. Insurance companies look at the car’s size, safety ratings, history of vandalism or theft on that type of vehicle, and its overall value.

If your car is worth a lot of money, expect to have higher premiums as it will cost more to insure than a cheaper baseline-model car. Repair costs and replacement parts for luxury or sports cars cost the insurance companies more than less expensive vehicles.

Carrying a loan or lease

If you financed or leased your vehicle, the lender or leasing company may require full insurance coverage on your vehicle. In other words, you may have to carry more insurance than you intended, but must carry it to avoid violating the terms of your contract. Once you own the vehicle without any loans, you can change the coverage as you see fit.

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 determining how much car insurance you need for your driving habits and in your state, then decide whether you need to add any extra coverage.

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 have already paid in the form of a premium.

When it comes to selecting a deductible amount, you should choose one you can afford while considering that a higher deductible often correlates with a lower premium. Remember, the only time you’ll be responsible for paying a deductible is when you file a claim, but you must have the money available.

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.

Insurance companies offer other discounts 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.

I always ask insurance agents about any and all discounts that may apply to me. You never know when there’s a discount that you can easily achieve and save yourself money.

How to lower your car insurance costs

Now that you know some of the factors that affect car insurance rates, it’s time to find the best auto insurance for your vehicle. To do this, take the time to gather the best car insurance quotes from different providers and compare your options.

With so many different costs associated with car insurance, it's critical that you understand the different ways to save on your policy. Here are some great strategies you can use:

• Shop around: Consider getting car insurance quotes from at least three to five insurers to determine which can give you the best rate.
• Opt for a higher deductible: If you have collision and comprehensive coverage, choosing a higher deductible could cut your monthly or annual premium. Just make sure you can afford the deductible amount in the event that you have to file a claim.
• Reduce coverage: Review your coverage options and determine whether you need certain optional protections. However, make sure you find a balance between your budget and your ability to pay if you get in an accident.
• Consider bundling: Insurance companies often offer a discount if you have more than one type of insurance product with them. For example, you could get auto and motorcycle insurance, auto and homeowners or renters insurance, or auto and life insurance and likely get a discount on both policies.
• Ask for other discounts: Car insurance companies often have a long list of other discounts that can help cut the cost of your coverage. For instance, some may offer a safe driving discount or a lower rate if you don't drive often. Review the discount options and make sure you're getting credit for each one that you qualify for.
• Improve your credit: Having good credit could potentially help you avoid higher insurance premiums, and it may also give you access to affordable financing when you need it.

FAQs

Bottom line

Knowing the factors that affect car insurance rates can help you save the most on your premiums. Try fixing things you can control, like your credit score, driving habits, and even the type of car you drive, and then compare options with different providers.

I suggest that you shop around and get at least a handful of quotes, comparing each plan and premium to determine which is the best for you.

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