premiums on the estimated risk associated with a policy. To calculate your risk factors and set your rate, they’ll ask for information about you, your car, and your driving history.

The 10 rating factors insurance companies use to set your rates

When you buy an insurance policy, you volunteer certain information to your insurance company. These are the 10 factors with the biggest impact on your auto insurance rates:

1. Driving record

When you request a quote or renew your policy with an auto insurance company, agents look at your Motor Vehicle Report (MVR)—a comprehensive record of your recent or complete driving history. They’ll add surcharges to your policy if they find any car accidents or traffic violations in the last three to five years, resulting in higher rates as long as the surcharge applies.

Most major insurers offer a usage-based safe driving discount using telematics apps that track your driving and report it to your insurer. In most cases, you can receive a sizable discount just for enrolling.

2. Past coverage and claims

Insurance companies like to work with drivers who have had an auto insurance policy for a long time with no lapses and few claims. It’s one of the reasons older drivers tend to pay less for insurance.

Prospective insurers will be able to see your claims history through something called a

CLUE report

. If you have a recent claim on your insurance—or if you dropped your coverage for a while—expect higher premiums for the next three to five years.

Use an app like Jerry with customizable payment reminders to avoid a coverage lapse.

3. Age & driving experience

Insurance companies trust experienced drivers with a proven record of safe driving. Young drivers and anyone with less than three years of driving experience can expect to pay higher rates due to the higher risk associated with their policy.

Driver’s education, usage-based insurance, and even good grades can mean discounts for young drivers.

Learn More:

The Best Cheap Car Insurance for Teens (2023)

4. Location

Insurers will check risk factors in your ZIP code when setting your rate. High rates of auto theft, vandalism, and traffic incidents will all raise the cost of insurance.

That’s why urban drivers tend to pay more for coverage. Drivers in rural areas get into fewer accidents and can typically pay less for the same amount of coverage.

Compare rates in your area
and check them against the average cost of coverage where you live.

5. Your car’s make, model, and age

Your auto insurance rates depend heavily on what you’re insuring—your vehicle! In general, newer vehicles with high safety ratings have lower rates, while

luxury cars

sports cars

, and

older vehicles

without standard safety features all cost more to insure.

When buying a new car, check

NHTSA safety ratings

and

IIHS loss information

to keep your costs low.

The cheapest type of car to insure:

Compact crossover SUVs

typically have the lowest rates thanks to their sturdy build, excellent safety record, and affordable repair parts.

If you have a full coverage policy, you may be able to get a discount for installing anti-theft equipment or new driver assistance technology.

Learn more:

The cheapest cars to insure in 2024

6. Coverage limits and deductibles

Most drivers need

full coverage car insurance

that includes some amount of liability coverage along with collision and comprehensive coverage.

This type of coverage is more expensive than a state minimum policy with only

the coverage required by law

, but it’s required by lenders for financed vehicles and a good idea for anyone who owns a car worth more than about $4,000. It’s easy to adjust your coverage levels in the Jerry app.

If your car insurance policy includes

comprehensive coverage

and/or

collision coverage

, you also have a deductible—an amount you agree to pay out of pocket before an insurance claim kicks in to cover the rest. A higher deductible means lower insurance costs.

Choose the highest deductible you’re comfortable paying in the event of a claim. Only buy state minimum coverage if it’s the only thing you can afford.

7. Credit history

Unless you live in

California

, Hawaii,

Massachusetts

, or

Michigan

, your insurance company can use something called a

credit-based insurance score

based on your credit history to determine your auto insurance premiums.

Drivers with poor credit have a statistically higher rate of insurance claims, which drives up costs for insurance providers. A recent study by the Consumer Federation of America found that drivers with credit scores under 578 paid 115% more for insurance than drivers with credit over 823.

Keep in mind: While federal law permits the use of credit-based insurance scores in underwriting, it’s illegal for an insurance company to use credit as the sole reason to raise rates or deny someone car insurance coverage.

Evaluate your credit score before your policy is up for renewal. If you can build your credit enough to move into a higher tier, you may see a lower premium at renewal.

8. Eligibility for discounts

Most insurers offer a range of

car insurance discounts

(typically 10 to 12) that can help reduce the cost of insurance. You could get a discount for:

Bundling your car insurance policy with a homeowners or renters policy

Paying your insurance bill in full

Maintaining a B average or better in school (for full-time students under 25)

Achieving a clean driving record for a certain number of years

Owning a new car (under three years old)

Enrolling in a usage-based insurance program

Shopping in advance

Using Jerry is a great way to ensure you’re getting all of the discounts for your driver profile.

Savings Tip: Research the discounts your insurance provider offers.

They won’t always advertise the full number of discounts they have available!

9. Annual mileage

With every mile you spend on the road, you add to the risk of accidents and violations—and increase your car insurance costs. That’s why insurers will ask about your typical monthly or annual mileage when issuing car insurance quotes.

Some insurers, such as
Nationwide
and
Allstate
, offer pay-per-mile usage-based insurance programs that can significantly lower the cost of car insurance if you drive less than 13,000 miles per year (roughly the national average).

Learn more:

The Best Low-Mileage Car Insurance Companies (2023)

10. Insurance company

Remember, while all insurance companies look at the same basic factors, every provider uses a different set of calculations to set your rates. That’s why insurance prices can look so different from company to company.

For example: Every insurance company assigns higher rates to drivers with violations, but drivers with DUIs see a significantly lower rate increase with Progressive and drivers with speeding tickets will see the lowest rate increase with Allstate.

Before settling on a car insurance policy, compare quotes from at least three to five insurance providers.

Learn more:

The 10 best car insurance companies in 2023

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Every company calculates your car insurance rates differently

There isn’t a universal calculation for car insurance rates: That’s why all

auto insurance quotes

are estimates—and why

comparison shopping

is so important.

Insurance companies all use the same basic information—known as a driver profile—to calculate your rates, but they put different weights on different parts of your profile. Two companies might look at the same info and quote you completely different rates.

The simplest way to estimate the cost of your car insurance is to work with an independent broker who can help you create a single driver profile to get multiple quotes.

For instance, when you request quotes in the Jerry app, you’ll go through a series of questions about your vehicle, personal information, and past insurance and accident history to build your profile.

App Perk: Jerry allows drivers to upload documents during the shopping process to verify their credit score, accident history, and other key factors.

FAQs

What determines the rate of your car insurance?

A wide range of factors impact car insurance rates, but some of the most important variables are your age, driving record, location, and vehicle.

How does insurance calculate your payout?

When you file an insurance claim, your insurance company will assign a claims adjuster to your case. They’ll review the evidence that you provided, along with any information from other involved parties and/or law enforcement. Based on their investigation, they’ll determine the appropriate payout for your case.

Does credit score affect car insurance?

In most states, it’s legal for car insurance companies to base premiums in part on your credit-based insurance score, which is derived from your credit history. Even in states where it’s illegal to use credit scores in setting car insurance rates, drivers with poor credit typically see higher rates due to related factors, such as age, homeownership status, and driving record.

SOURCES

https://consumerfed.org/wp-content/uploads/2023/07/Official-CFA-Credit-Score_2023-FINAL-REPORT.pdf