When it comes to car insurance, most people realize there are many factors that go into determining your risk and ultimately how much you pay. Some might be obvious, others … not so much. Here are just a few of the things insurers consider when calculating your car insurance rate.
The City (or Town) You Live In
If you’re an urban dweller, you may have a higher insurance premium than those living in rural areas. Even if you’re an expert driver, many incidents are beyond your control. Cities jam-packed with traffic and higher vandalism rates put you more at risk. If you’re considering a move from Small Town, USA to the City That Never Sleeps, know that you’ll likely see a change in your premium.
The State You Live In
Each state has its own rules for car insurance. These local requirements dictate what kind of insurance you need to carry, which can cause significant differences in prices from state to state.
Your insurer may also consider how many cars are on the road in your state, as well as how much congestion you’re likely to deal with. So if you’re living in New York, you’ll probably pay more than someone from Idaho, where the roads are less crowded.
Your Driving History & Habits
Insurers don’t just label you as a good or bad driver. They try to calculate your likelihood of an accident. If you’ve been in two accidents in the last couple years, you may have a higher chance of being in another one in the future. Your Motor Vehicle Report (aka driving record) details your accidents and moving violations (speeding, texting, driving under the influence, etc.). Typically, a cleaner driving record equals a lower premium.
The average distance you drive can also affect your rate. If you’re commuting 20 miles to work every day, you may pay a higher premium than someone who only uses their vehicle to run to the grocery store on weekends.
Your Marital Status, Gender and Age
First comes love, then comes … a lower insurance premium? Well, maybe. Interestingly, studies show that married drivers are less likely to get into accidents their single counterparts. When it comes to gender, young males are more likely to be involved in an accident than females. Finally, age plays a role in your determining your risk. It comes down to experience: older drivers naturally have more experience than young rookies. Therefore, it’s safe to say that an 18-year-old single male driver will be deemed riskier than a 45-year-old married woman.
Why do insurers sort you into these groups? Because they can’t sit in the car with you to gauge your personal driving habits, so they need to rely on what they know about drivers like you. That said, many are working to solve this problem by offering discount programs that use technology to monitor your driving and reward you for being safe.
Insurers look at the safety and reliability of cars. If you’re driving a vehicle that scored well in crash safety tests, you could be rewarded with lower rates than a driver with a fancier car that performed poorly on those same tests.
Of course, these aren’t all the factors that go into determining your car insurance premium. Everyone’s circumstances are as different as their driving habits. That’s why auto insurers take many things into account in an effort to offer you the lowest premium based on your risk.
About the author: Eric Madia is Vice President of Product Design at Esurance, where he is responsible for designing the company’s personal lines products. Eric has 23 years of experience in the auto insurance industry, focused primarily on underwriting, pricing and product innovation. You can follow him on twitter @Erictheactuary.