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Auto Insurance- How Your Rates are Calculated

Auto insurance companies’ rates are generally standard across the board, but many companies will charge much higher rates than others for the same amount of coverage. When this happens, people automatically assume one of two things: that they should choose the cheaper policy because of its cost, or that the more expensive policy offers better coverage, when in fact in might not.

The truth of the matter is that companies may have vastly different rates for the same amount of coverage, so you need to understand why you are being charged a certain premium from one company versus another. There are four main factors that will influence your auto insurance rates.

Driving Record: Your history of violations and accidents plays a large role in your auto insurance rates. If you’ve had accidents before, you will be seen as a higher risk to the insurance company, which will raise your premiums. Conversely, if you have a clean driving record, then your rates will be substantially lower because you are a safe driver.

Personal Information: Statistics give insurance companies a precedent on which to set auto insurance rates when it comes to age and gender. It has been proven that younger drivers and male drivers are the highest risk, while drivers over the age of 25 and female drivers are a much safer group to insure. This is a generalization, and may not always be true, but the insurance company uses these statistics to quote your insurance rates.

Vehicle Type: Vehicles are separated into different classes for auto insurance purposes. The more expensive and risky a vehicle is, the more it will cost to insure. For example, a two-door Mustang might cost almost twice as much as a four-door sedan or family car.

Amount of Coverage: The less coverage you need, the less you will pay, generally speaking. However, purchasing higher coverage isn’t going to be that much more expensive. For example, a person with a clean driving record might pay $600 a year for minimum coverage, or $800 a year for full coverage. That’s only a difference of $16 a month, which isn’t much for all the extra coverage you will get.

When auto insurance rates are calculated, the standard rates in the industry are used as a base. These factors are then added on, and your total risk is calculated to determine what risk level you present to the insurance company. There are three main types of risk for insurance purposes: preferred risk, standard risk, and non-standard risk. Preferred risk drivers are the lowest risk, while non-standard drivers are the highest risk.