Demystifying Auto Insurance Rates and How to Lower Them

Daniel Fisher |

For some people, getting an auto insurance quote is a lot like spinning a roulette wheel; you don’t know what will come up, and each time you spin it (getting quotes from different companies) it’s always different. Worse, there doesn’t seem to be any rhyme or reason for the quote. Yet, setting auto insurance rates is actually a fairly straightforward process as all insurance companies use, essentially, the same set of factors. So, it can be somewhat baffling when they come up with vastly different rates. Knowing how your auto insurance rates are set could help in working with insurance carriers in getting the best possible rates.

The Risk Factors

Most car insurance companies use the following set of risk factors in determining your rate:

Your age: Younger drivers (under 26) are higher risks.

Your gender: Men tend to be rated higher risks.

Your marital status: Statistically, married drivers are lower risk than single drivers. Plus, many carriers offer discounts for married couples.

Type of vehicle: The more expensive your car, the higher rate you pay. High performance cars are also rated. Certain types of cars are more prone to auto theft.

Where you drive: Certain regions or even neighborhoods can be deemed higher risk. Urban areas tend to be rated higher than suburban or rural areas.

How much you drive: The more you drive the more chances of an accident.

Credit history: Although it can’t be proven, insurers have found a correlation between people with poor credit and driving risk. Insurers use an “insurance credit score” in applying this factor.

Your driving record: Actually, this is not as significant as the other factors, largely because, if you do have a bad driving record or have made a lot of claims, the insurer will likely deny you coverage anyway.

The big difference between insurance companies is the weighting they give to each of these factors. To some, your marital status may not be as important as your gender, and vice versa with others. Also, the strength of anyone factor could override a weakness in another. For instance, if you have an excellent credit rating, the insurer might overlook the fact that you have two speeding tickets on your record.

Ways to Lower Your Rate

Of course, what you are quoted doesn’t have to be what you end up paying if you know what discounts are available. Most carriers offer a range of discounts, some having very little to do with lowering their risk and more to do with increasing their profits. For instance, the multi-vehicle discount offered by most carriers can reduce your premiums even if they’re both expensive cars.

Here some other ways to lower your premium:

Get a higher deductible: If you are willing to put more of your own skin in the game, the insurer will reduce your rate because they will be less at risk. Just by increasing your deductible be a few hundred dollars, you can reduce your premium by as much as 20 percent.

Drop unnecessary coverage: If you are insuring an older model car, consider dropping the collision or comprehensive coverage. You need to determine if your coverage would exceed the cost of your deductible and insurance premiums enough so to make this extra coverage worth the higher premium.

Drop the medical coverage: If you have a solid medical plan and disability coverage you probably don’t need medical coverage. You could get by with just the minimum liability coverage.

Drive less: You might be able to qualify for a low mileage discount. Try to work out of your house or join a car pool. 

Add some safety features: Some insurers will reduce your rate if you add certain safety features, such as air bags, anti-lock brakes, an alarm system, etc.

Multi-policy discount: Most insurers will lop off some premium if they have more of your business. Combining your auto insurance with a homeowner’s policy or insurance on other vehicles will lower your rate.

Nix the roadside assistance: Unless it is provided free, you should check to see if any of your credit card companies provide less expensive roadside assistance.

Finally, just ask. You may find out about other discounts, or, if you have been with your insurer for a while, you could spin the wheel again to see it your good driving and claims free record with them lands you on a winning number.

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