A variety of factors are considered when an insurance company determines what your car insurance premium will be. Broadly speaking, there are three categories: factors related to you, factors related to your car, and factors related to the coverage you select.
- Where you live, your age, and your driving record all contribute to the formula that determines how much you will pay.
- The type and amount of coverage, and the deductible you choose, also impacts your premium cost.
- Shopping around, asking for discounts, and bundling your car insurance with other insurance policies may help you to get a better rate on your car insurance.
Are your car insurance payments giving you sticker shock? One of the most challenging things about driving is the financial requirements. Gas, maintenance, and insurance may put pressure on your bank balance when you really don’t need them to.
Fortunately, we’ve got a quick guide on how car insurance is calculated. We’ll also let you know what might cause car insurance costs to rise. Then, we’ll review a few handy tips on how to possibly lower those payments, too.
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How Are Car Insurance Payments Calculated?
Let’s jump right into how car insurance premiums are calculated. (If you need a quick primer on how car insurance works as a whole, check out our car insurance 101 guide.)
Insurance is a business based on risk assessment. There are a lot of factors that go into creating a policy and calculating the customer’s payment amount. While some factors that determine a car insurance payment amount may seem random, they do have a real, provable effect on risk.
However, there are some things that should never impact your car insurance payment. These things include race, religion, and political party.
Your car insurance payments are decided by your insurer. The final amount is based on a complete breakdown of a lot of factors about you. Those factors are broken down into three categories: you, your car, and your coverage.
Let’s talk about how your general profile could potentially affect your car insurance payment:
How Do You Affect Your Car Insurance Payment?
There are a few things about you that your auto insurer will look at to calculate your insurance payment. Once you know the factors that are considered when you shop for a car insurance policy, it’s easier to understand how those payments can get so high.
Here are some possible factors:
- Your Age – Seasoned drivers are statistically less likely to get into car accidents or make impulsive driving decisions. For this reason, insurers charge them less. Younger drivers can pay almost double what a seasoned driver pays for insurance.
- Your Gender – Just like age, gender could be a factor in the amount that you pay for car insurance. At one time men tended to have more serious car accidents than women did and got into more accidents overall. As a result, they used to pay more for certain coverages,.
- Your Driving Record – Your insurance company will look at your record. If you haven’t been in any accidents or racked up any driving violations, your payments will be much lower than a riskier driver. For lower payments, avoid getting points on your license.
- Your Grades – Students under the age of 25 might qualify for notable discounts if they get great grades in school.
How Does Your Vehicle Affect Your Car Insurance Payment?
After your insurance provider has figured you out, they’ll take a look at your car next.
- Car Make and Model – Some people think that the newer your car is, the less you’ll be charged for insurance. Newer cars need fewer repairs and have more up-to-date safety specs. That means they’re a lower risk and cost less to insure. This is not the case. Remember every bell and whistle comes with a price tag to repair or replace if a claim is filed.
- Amount of Use – If you drive every day for long distances, you’ll likely be charged higher premiums than if you drive short distances or only on the weekend. The more miles, the more risk, so this is an important factor for your auto insurer.
- Car Location – It may not seem fair at first, but if you drive and keep your car in a big city or high risk location, you’re likely to be charged more for insurance. This is because some cities are riskier places than others. If there are more car thefts and accidents, insurance premiums could potentially cost more.
How Does Your Coverage Affect Your Car Insurance Payment?
Like any insurance product, auto insurance has various options and choices built into or can be added to it. The amount that someone pays for auto insurance relies on what factors you choose to include in your coverage plan.
For example, you’ll want to think about:
- Deductible Amount – The deductible is the amount you pay before your insurance kicks in and covers expenses. The higher your deductible, the lower your monthly insurance payment is. If you choose a high deductible, though, remember that you may eventually be paying what you’re saving on insurance costs somewhere else if there’s an incident .
- Type of Insurance – In some ways, putting together a comprehensive car insurance plan for yourself is a little like playing mix and match. Most policies include collision, liability, and comprehensive coverage.
They could have the option to add things such as roadside assistance or gap coverage etc., for an additional monthly cost. To get a better idea of all the options, take a look at our auto insurance options.
- Number of Previous Claims – Filing an auto insurance claim because an accident could potentially raise your car insurance rates. Even if you have good auto insurance coverage, a claim adds to your level of risk, which might raise the cost of your payments. Some companies offer accident forgiveness coverage, which could mean where your price won’t go up due to your first accident with that carrier.
- Lapses in Coverage – If for some reason, you’ve let your insurance coverage lapse in the past, that could also drive up the cost of your payments. Being an uninsured driver is extremely risky, and most insurers treat it pretty seriously.
How Could I Lower My Car Insurance Payments?
Once you know what affects your car insurance payments, it’s easier to figure out how you could potentially save money. Even then, some of the ways to lower your car insurance payments might surprise you.
For drivers who are young or inexperienced, it might not be possible to lower the costs of auto insurance by that much. This is simply because drivers in those categories pose a greater risk that could lower with time. But for seasoned drivers who have put in a lot of miles on the road, there are a few ways you could possibly strategically lower your payments.
Build Good Credit
Your credit score has a surprisingly large impact on your car insurance in most states. If you haven’t paid close attention to your credit and are in the market for a new insurance provider, now is the time to start building up your score.
Note that several state legislatures have restricted insurance companies’ access to credit scores when determining insurance rates. California, Hawaii, Massachusetts, and Michigan have banned insurance companies from using credit scores to set insurance rates. Several more states are implementing similar restrictions.
When looking to increase your credit score, here are a few ideas to keep in mind that could help:
- make payments on time,
- strategically request higher credit limits, and
- dispute any charges that you don’t recognize.
If you are contacted by a debt collector, it’s never a good idea to ghost them. They could take your case to court and garnish your wages. Answering those phone calls is always the best idea.
Just to be clear: your consumer credit score and your insurance credit score are technically different things, although they are related. Your consumer score predicts how likely it is that you will be late on a payment. Your insurance score predicts how likely it is that you’ll file an insurance claim.
Choose Your Insurance Provider Carefully
Different providers might be able to offer really different insurance plans. Auto insurance, similar to all insurance products, is something that really benefits from careful research and thought. Talk to your agent about what different providers offer and compare quotes so that you can maximize your savings.
It’s also worth it to look for discounts. There are a few ways you could possibly get a discount on auto insurance, just a couple of examples are being a safe driver to being a military veteran or holding multiple insurance policies with the same company.
Carry the Right Amount of Coverage
Earlier, we mentioned some of the different components that can make up a car insurance policy. To ensure that you’re saving money on your payments, streamline your policy to make sure you’re only carrying the coverages you need and want.
(this was true until Covid sent the price of used cars soaring)
This doesn’t mean that you should leave yourself unprotected just to lower your bills. Don’t skimp on the coverage you need just because it seems high–there may be another discount(s) available.
Speak with your insurance agent or connect with a Guaranteed Rate Insurance agent to find the best ways to balance your safety with your bank account.
Pay a Higher Deductible
If you’re confident about your safety on the road, you can opt to pay a higher deductible in exchange for lower monthly insurance payments. A quick reminder: a deductible is the amount that you pay for repairs and expenses before your auto insurance kicks in and begins to cover expenses if there is a claim.
If you choose to pay a higher deductible, you won’t pay as much in monthly or yearly payments. You will have to pay more if there is an accident or other expense before your insurance provider will begin to cover costs. However, this may be a risk you’re willing to take.
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The Bottom Line
If your car insurance bills seem high, it’s worth it to take a little time to understand the ins and outs of how those costs are assessed. Understanding why car insurance is high can be the key to understanding how you may be able to lower the cost.
If you’re interested in shopping around for car insurance that fits your needs and your budget, head on over to Guaranteed Rate Insurance. We search for the best rate and can save our customers up to $760 a year.*
*Savings, if any, vary based on the consumer’s profile and other factors. Contact your insurance agent for more information. Restrictions apply. Source: Guaranteed Rate Insurance internal survey data of average savings by new customers who saved from November 2021-January 2022.
All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate Insurance does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Guaranteed Rate Insurance. Guaranteed Rate Insurance, its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.
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