How do insurance companies determine my car insurance rates?
Have you ever wondered how this whole insurance world works? What is it that insurance companies are so worried about?
Well, there is a lot of risk for an insurance company. They pay the bills when you get into a wreck. It is in their best interest to know as much about the driver, car and area they live in before giving an insurance quote.
Legally, we are required to carry car insurance in the state of California. And yes, we can shop around a bit, but your insurance costs are affected by a few key elements.
You could be young and a great driver, but still receive a higher premium than someone older and more experienced.
Doesn’t seem fair?
Well, we should take a look at some statistics. In California, 593 fatalities occurred by drivers 15-20 years of age. 6,400 total in the United States. Teen drivers are 4 times more likely to get into an accident than adult drivers according to the Department of Motor Vehicles.
So, if you are wondering how your insurance company adjusts their rates due to certain factors, read this blog.
If you are looking at buying a new or used vehicle and want to know more about your insurance options, there are some things you should know.
Here is some helpful information on how insurance companies rate you as a driver.
There is a state minimum requirement for the amount of cheap car insurance California requires you to carry.
Here is a break down of the types of insurance you could acquire in the state of California. Next, we will get into how your personal information and type of car affects the cost.
California state minimum requirements:
- Bodily Injury Liability Limits: $30,000 per occurrence/$15,000 per person
- Property Damage Liability Limits: $5,000 per occurrence
If this doesn’t seem like much, it’s because it’s not.
This amount of insurance will only protect the other party involved in the accident. The state wants to make sure that if you are at fault for an accident, the other party is covered by your insurance. Seems fair.
But we all know that in the case of an accident, no matter how severe, we also want to be covered. I mean, you need to get to work right? Most people in California depend on their vehicle for so much.
This is why full coverage is always a good option.
Here are the other available options when shopping for car insurance:
- Collision coverage will protect you and your own vehicle in an accident. You will need this if you have a loan out on a vehicle.
- Comprehensive coverage will cover other types of damages to your vehicle as well as theft. So next time someone hits you in the parking lot with their grocery cart, you’re covered!
- Uninsured Motorist coverage is a very underrated type of coverage. There are still people in the state of California who fail to carry insurance. You will want to be protected if one of them hits you. If you are involved in a hit and run, most likely it is because the other party doesn’t have the proper insurance. You may never find this person. This type of coverage allows for your car to be repaired no matter what!
- Towing and roadside assistance are a great tool to have for any driver. I cannot tell you the amount of times I have had to use this. Just know that even if you think you will never need it, you will. Trust me!
Factors That Affect Your Auto Insurance
Alright, so now we can delve into those factors we want to discuss.
Each car insurance agency is a little different. You will want to talk to a representative for a quote.
And remember, shop around! You can get a great deal by doing a little research.
Car insurance in San Fransisco will look a little different than car insurance in South Dakota. Traffic, people, parking, commute time are all factors when dealing in the car insurance world.
1) How does where I live affect my insurance rates?
The area you live in greatly affects your rates.
Because most of the accidents in the state of California occur near your home and in urban areas, your zip code means a lot. The more people around your neighborhood, the more cars. This is a pretty simple equation for an insurance company.
You are at a higher risk of being in an auto accident, the more cars drive on the roads around you.
This means that people who live in Los Angeles probably pay more for their car insurance than people in a rural suburb.
You may also deal with higher rates of theft in certain areas. You might even notice a difference in the cost of auto repairs in your area verses other zip codes. Do some research and find out how where you live determines the cost of owning a vehicle.
2) How does my gender and age affect my insurance rates?
The people who usually incur the highest rates for car insurance are men who are young. This means usually men under 25 years of age.
This has to do with statistics. More teenage boys get into car accidents than girls. But the good news is that with every year you age, your insurance rates usually lower. As long as you can prove that you have been a safe driver, over time your risk factors drop. Rates can drop as much as 20% when you hit the age of 25.
Here are some statistics on teen drivers and the risks they face.
The good news is that in the past 30 years, teen driving fatalities have gone down.
Why is this you ask? Because our cars are much, much safer. It is a good idea to buy a teen driver a safe and reliable car. But it is a catch 22 because many times the newer cars have a car payment and higher insurance rates. There is a sweet spot for teen drivers. Buying a used car with a great safety rating could save you tons.
Crash test ratings have only improved over the last thirty years, as well as airbag quality and seatbelt quality. Gender and age do affect your rates, so think about this when shopping around.
The top rated cars for safety can be found here.
If you want cheap car insurance in California, review CheapInsurance.com’s auto insurance page, with tips that can help you save.
3) How does my profession affect my car insurance rates?
Your profession can affect your car insurance rates in a couple of ways.
Are you on the road a lot for work? The amount of time you spend on the road will be used to assess your risk of being in an auto accident. Police officers and ambulance drivers may get lower rates because they are determined by the insurance companies to be safer drivers in general.
No one said these assessment were bulletproof, but the insurance companies need to have a feel for what sort of risk you are to others and yourself.
If your car is used as a company car which is driven by yourself and others, this could affect your rate.
Get the picture? The more you drive, the more likely you are to get into an accident. When you drive also matters!
Traffic? Yes, this is taken into account as well. If you are a commuter, you are at a higher risk of getting hit.
4) How does my car’s safety rating affect my insurance?
If your car has a great safety rating, you are less likely to pay medical bills for you or your passengers.
This is pretty much a no brainer.
You want your car to be safe right? But you also would love to drive around that classic convertible. Well, those two don’t really match up. You have to choose.
The newer cars out on the road have better safety ratings.
A car’s safety ratings are measured like this:
Cars are put through a crash test and rated according to a few factors. One is the front crash test rating. Two cars of similar build are driven towards each other at 35 miles per hour. This is simulating what most car crashes look like.
They also do the same type of test with the sides of the cars called the side-impact crash test.
Each car is also given a roll-over rating. How likely is your car to roll over? This is determined before the cars are put out onto the market. Each vehicle is rated and those ratings are given up-front so buyers know what they are purchasing.
Cars in these crash tests are also rated on how well the car protects it’s driver and how well it protects it’s passengers.
The Insurance Institute for Highway Safety is a great resource. Here is how they conduct their tests.
5) How does the age and size of my vehicle impact my insurance rates?
As a rule of thumb, larger cars are generally safer than smaller cars. Usually larger cars with a good safety rating have cheaper premiums.
Cars that have larger engines compared to their body size are more expensive to insure. A small sports car with a v12 engine will be more expensive than a small sedan with a v4 engine.
The age of the car is a huge factor as well. If an older car is in an accident, there is a higher risk that the vehicle will be totaled. A new car is much more likely to have higher collision coverage rates because they have less chance of being totaled and more chance of being repaired.
The higher the coverage, the higher the premium. In more cases than not, people with older vehicles who do not make payments to a bank, tend to just drop the collision coverage all together. If they get into an accident, they are more likely to replace their older vehicle than to fix it.
This one is pretty simple. If you have been in an auto accident, received tickets, or filed any auto insurance claims, you are a higher risk to the insurance company.
In their eyes you are more likely to file another claim, or to get into another accident.
So yes, your driving habits greatly affect your insurance premiums!
If you have a horrible driving record, multiple accidents, or multiple tickets, this equals very high insurance rates. Some companies may refuse to insure you at all.
- A minor violation (speeding ticket) can affect your rate by 20-40%.
- A major violation such as a DUI, can increase your premium by 100%
- Multiple violations may make you a high risk driver and considered “uninsurable”
The good news is that insurance companies don’t hold grudges, and over time these “bad marks” on your record fade.
- Usually tickets and smaller accidents fade in about 3 years.
- A more serious accident may take up to five years.
- A DUI on your record will affect you for up to ten years!
Current driving activity may also affect your rates. Depending on how you use your car and how far you drive, your rates could change. Keep a solid driving record, don’t drink and drive and sign up for a drivers safety course.
Watch your rates go down!
The big picture is simple: more experience and a better driving history makes for a cheaper premium.
Most expensive to insure: a male ages 16-20, driving a sports car with a big engine that lives in the city.
Least expensive to insure: an adult female with a good driving history that lives in a rural area.
No matter which road you take, make sure you are insured!