Factors that Affect Your Car Insurance Rate: Complete Guide

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Are you thinking about buying or leasing a new car? United States law requires you to have insurance on your vehicle in case of an accident. If you injure someone else of damage their vehicle, then your insurance takes care of the problem. This way, the victim doesn’t have to sue you in court for damages.

Insurance is a necessity, but many people don’t know what they are doing when selecting their insurer or negotiating premiums. Instead, they roll over and take the first premium that an insurer gives them.

Your insurer assesses your risk profile to determine your premium. They take into account a variety of factors before giving you an estimate. In most cases, you might not even be aware that they are building a risk profile during the telephone inquiry.

When you receive the estimate, you may not realize that there’s room for negotiation in the cost of the premium. Don’t ever accept the first estimate you get back from the rep. This article provides you with some tips and tricks you can use to bring down your insurance rates. By examining factors that affect your premiums, we can make adjustments to get you a better deal.

Your Age

The first question any insurer will ask you during an estimate inquiry is your age. Your age is possibly the most significant factor for estimating your insurance premium. Statistics show that the majority of young drivers have an accident before they are 21-years old.

Insurers rely on statistics for calculating any premium, whether it’s in the auto industry or the life insurance sector. Therefore, just because you feel your driving is excellent, doesn’t mean that you can escape the scapegoat given to you by other drivers your age.

Insurers don’t like to take a risk, and if you’re under the age of 25-years old, insurers see you as part of a high-risk demographic. As a result, you can expect to pay through the nose for your premiums. In some cases, drivers under 25 might pay twice what a person over the age of 25 pays for their premiums.

After you turn 25, it’s vital that you call your insurance company and ask them to adjust your premium to suit your new risk demographic. Waiting a few months to do this task could cost you hundreds of dollars in savings.

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Your Driving Record

During your inquiry, the insurer will ask you about your past driving record. They may inquire about any penalties or arrests for past driving behavior. Insurers will view your driving history as an indicator for future performance. If you have a poor track record behind the wheel, expect them to come back with a hefty premium.

The insurer takes into account parking tickets, speeding violations, and DUIs when assessing you for a premium. If you have a history of speeding tickets, that does not make you look like a driver that’s taking care on the road. Speeding is reckless behavior in the eyes of the insurer, and they’ll adjust your premium to cover the additional risk in insuring your vehicle.

Your Credit Score

Your credit score is probably the second leading factor insurers use to determine your premiums. Americas three big credit bureaus, Equifax, Experian, and TransUnion, collect data every month from credit agencies like insurance companies and banks. They manage this data on you and use it to compile your VantageScore or FICO credit score.

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When calculating your credit score, the bureaus take into account five factors that determine your credit risk profile.

  • The age of your credit facilities – How long have you been using credit and what’s your oldest account?
  • How many credit facilities you own – Do you currently have lots of credit facilities?
  • The credit utilization ratio on your accounts – Make sure you never use more than 30-percent of any credit card facility, as banks see this as overextending your finances.
  • Your credit mix – The bureaus want to see you owning multiple accounts to prove you know how to manage your debts.
  • Your payments history – This is the most critical factor in determining your credit score. Do you pay your accounts on time and in full every month?

Depending on how you manage your credit score, it could be anywhere from 300 to 850. People with credit scores above the 800-mark receive the best premiums, while subprime credit scores below 580 can expect steeper premium costs.

You may be wondering why your credit score has anything to do with your insurance premium. Well, insurers view how you handle credit as an indication of whether you will pay your premiums promptly.

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How Long Have You Had a License?

This factor is similar to the age question. Not everyone gets a license when they turn 16-years old. Some people stay away from getting a license for years after graduating from high school. It’s for this reason that your insurer will want to know the first issue date of your driver’s license. If you have less than 7-years experience with driving, its likely to result in a higher premium.

The more experience you have in the driver’s seat, the lower your risk of being in an accident. That’s another statistic that insurers rely on when making their decision on what to charge you. If you’ve had your license for 30-years, then in the eyes of the insurer, you are a far lower risk than someone who got their license last month.

Your Primary Residence Where You Keep the Vehicle

During the inquiry with the insurer, they’ll ask you where you park your car during the day and at night. This question helps them assess the risk of your zip code. Crime is a significant problem across America, with cities having higher crime rates than suburbs or rural areas. In high crime areas, there’s a chance that your car may be the victim of a smash and grab or a carjacking.

Cities also have higher volumes of traffic, creating more accidents on crowded streets than on open country lanes. Therefore, when your insurer asks you this question, they’re trying to determine if your car is at risk of theft, damage, or accidents due to your location.

The best scenario for an insurer is for you to live in a suburban community with low crime rates. You should store your car in a locked garage at night, and only use it for private purposes, not work. If you drive to the office, then they’ll want to know if you leave your car on the street during the day, or if you leave it in a secure parking garage.

This scenario is far better than someone who lives in a crime-infested city and parks the car on the street day and night.

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Your Gender

Statistics also show that women are involved in fewer accidents than men. This fact comes from our genetic makeup. Men are victims of testosterone, and they are far more likely to get a thrill from driving at high speeds and driving recklessly. Women are sensible behind the wheel, and they are more conscientious when driving. As a result, statistics show that women do indeed have lower accident rates than men.

Therefore, if you’re a male under the age of 25-years old, with a sports car in the garage, you can expect the insurer to charge you a hefty premium. In some cases, women may receive up to 25-percent lower premiums than men, especially after the age of 40-years old. There are even some specialist insurance companies that only deal with women, and refuse to insure men.

Your Previous Insurance History

Insurers also take into account your previous insurance history when calculating your premium. Unless you’re a new driver, insurance companies want to see that you have continuous insurance coverage.

As a result, you’ll have to explain if you have any gaps in your insurance history. A story like you went overseas and sold your car will sit better with them than telling them you had a suspended license for a year.

Failing to have any history means that you were driving uninsured, and you could face a premium that’s more than $100 higher than someone who has 7-years of insurance history behind them.

The Annual Mileage You Drive

Your insurer will ask you for your estimated annual mileage as well. If you don’t drive much, then you can expect to pay less for your premiums than someone who does 30,000 miles a year as a sales rep. Driving more means you have more time on the road.

While insurers can respect the additional experience you get behind the wheel, it also shows them that’s there’s more chance you’ll be involved in an accident. If you play football, and you show up for every game and practice, there a higher chance you’ll experience an injury.

The same goes for your insurance as well — the more time you spend on the road, the higher your chances of claiming on your policy.

Your Marital Status

Statistics show that single people are more likely to engage in risky driving behavior that leads to an accident. Therefore, you can expect to pay more for your insurance premium if you are unmarried.

Insurers think that married couples have to care about their family, and they are less inclined to take risks on the road. As a result, they reward you with lower premiums than singles.

Your Claims History with Insurers

The insurer will also inquire about your previous claims history with insurers. You mustn’t lie about this during your inquiry. All insurers share a database where they check up on the answers you made during the interview process. If they find you lying, they’ll refuse to insure you at any price.

As you can imagine, people that have a history of frequently claiming on their policy are not ideal clients for insurance companies., Therefore, you can expect them to increase both your premium and the excess fee they charge you when you make a claim.

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Your Vehicle

What kind of car or vehicle you drive also plays a role in the cost of your premium. During the interview, the insurer asks you about the make and model of the car, as well as the production year. If you register a muscle car or sports car, that sends up red flags. Insurers know that people who drive these types of vehicles are doing high speeds frequently. Therefore, you can expect a higher premium.

Your insurer will also ask you for a list of engine modifications to the vehicle as well. If you start rattling off a list of performance parts, you can expect the insurer to write you an expensive policy. The same goes for people that want to get coverage for their motorbike. These are high-risk vehicles for insurers, and they come with high premiums as well.

Ownership of the Vehicle

Our last factor on our list is the ownership of the vehicle. If you’re insuring your car and letting your kids drive it all day, you’ll have to list them as additional drivers. Having your kids on your policy will increase your premiums.

If you own your car outright, you also qualify for a lower premium than someone who is leasing or financing their vehicle.

Wrapping Up – Negotiate Your Premium

Many people take the first estimate that insurers send them as their only option. However, it may surprise you to learn that you can request them to adjust their quote. If you have a good driving record, excellent credit, and you are outside the high-risk demographics mentioned in this article, you have leverage in negotiations.

Insurance companies are like any other business; they are always looking for new business. If you are a model client, then there’s no reason why they would want to turn you away to the competition. If you do receive a high estimate, shop around with other insurers for a better deal.

Asking your insurer to “sharpen their pencil” on your estimate may save you hundreds of dollars in premium costs over the year.


Oliver Dale is Editor-in-Chief of MoneyCheck and founder of Kooc Media Ltd, A UK-Based Online Publishing company. A Technology Entrepreneur with over 15 years of professional experience in Investing and UK Business.His writing has been quoted by Nasdaq, Dow Jones, Investopedia, The New Yorker, Forbes, Techcrunch & More.He built Money Check to bring the highest level of education about personal finance to the general public with clear and unbiased

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