To many drivers, the determination of car insurance premiums by insurance companies can seem a little mysterious. Most people know that their driving record is a major factor in their insurance rates, but there are a number of other factors that go into calculating what each driver will pay for insurance. Why do you pay more than your neighbour when you both have a clean driving record? How can your cousin pay less when she has a ticket and you don’t? Take a look at the factors that go into determining rates.
Your Driving Record Does Matter
Of course, driving record is a major factor in determining rates – perhaps the most important factor. If you have a ticket or an at-fault accident on your record, you will pay a higher rate than you would without it. Conversely, drivers who maintain a good, clean driving record over long periods of time will find their rates are lower. The more tickets and accidents that appear on your record, the more likely it will be that you car insurance rates will be higher.
It’s not just what’s on your driving record, but the length of the record that matters. New drivers are a higher risk due to having less experience. This means that their rates are higher. The longer you have been driving, the better your rates will be due to your increased experience on the road. Although it is usually seen as young drivers who have higher rates, remember that new drivers of all ages will be considered a higher risk.
The Car You Drive
It’s not only you as the driver, but also the car you choose to drive that contributes to your insurance rates. Different cars are rated by insurance companies according to a combination of factors. High-value luxury cars will cost more to insure because they cost more to repair or replace. Sports cars are statistically more likely to be involved in a serious accident, so again they see higher rates.
Safe, economical cars usually see the lowest rates. Cars that are less likely to be stolen are also a better bet for low rates.
Where You Live and Where You Work
Your postal code is another factor that goes into calculating your insurance rate. Where you live determines where your car spends a good deal of its time. Areas with higher accident or theft rates will carry higher rates. Specifics about your home count as well; if you park in a garage rather than on the street, you may see a lower rate on your auto insurance.
How far you drive from home to work is part of the calculation as well. Long commutes mean higher rates. If you don’t work or work from home, your car is on the road less frequently and thus is at a lower risk of an accident. This means rates might be lower.
The Calculation of Risk
Every insurance company does a calculation that includes these and other possible factors to decide what your rate will be based on the level of risk you as a driver represent to the company. Simply put, the more likely you will have a claim, and the more likely that claim will cost the insurance company a lot of money, the higher they will charge you.
All insurance rates are basically a calculation of risk, and each driver comes with a unique combination of factors that can raise and lower rates. This means that every driver will have a different rate because their risk level is unique to them. You may drive the same car as another person, but have a different driving record. You may have the same number of years of experience and even live in the same area, but drive different cars. Each premium is calculated for that particular driver and car.
The important thing to remember is that each insurance company calculates risk in their own way and places a different amount of importance on each factor. That means that from one company to another a driver can find a great deal of difference in the insurance rate quotes. Shopping around for car insurance quotes is the quickest way to discover just how different those rates can be – and just how much less you could be paying just because you took the time to get a few quotes. Shopping around can match you with the right insurance company for your particular risk factors.