Car insuranceis a large chunk of change that comes out of your bank account each month. Even if you're paying a "good" rate, you might still feel like it's too much.
Sometimes you wonder if you can get
cheaper car insuranceand think about calling your insurance company to ask. But you don't relish the thought of waiting on hold only to be given the runaround, a lot of jargon, or an upsell. It all seems so complicated and you’re not sure how they come up with a cost.
What criteria do companies use to calculate your rate and which factors are they not allowed to use?
What factors can’t be used to determine insurance rates?
Even though insurance companies have access to vast amounts of your demographic data, they cannot determine your eligibility for coverage or your rate based on your race or religion. This is illegal, and state laws have banned discriminatory rate-setting practices across the country.
You don’t have to answer any questions about your race or religion when speaking with an insurance agent. If they insist on an answer, reach out to an insurance commission in your state.
Your individual information isn't the only information that insurers assess. Insurance companies collect and analyze national driving trends and use their findings to enrich their profile of you. As reported by
Forbes, there are several demographic attributes that insurers weigh heavily—like age.
Based on national trends, younger drivers are far more likely than older ones to drive recklessly and get into accidents. If you’re a teen driver looking for coverage or a parent seeking coverage for your teen, you'll pay more for your premium.
Things like your gender, location, and driving history are also
factored into your riskas a driver and used to set your rate. Gender is another consideration, as men are more likely to get into accidents than women.
How do insurance companies calculate your rates?
According to the
Insurance Information Institute, insurers consider several factors starting with your driving record. You're unlikely to have to pay more if you have a ticket because your left headlight burned out.
But more serious offenses like speeding, not stopping at a red light, or speeding in a school zone could cost you. Further, whether serious or minor, a high number of total violations. If you've been
convicted of a DUIor other serious crimes, you can expect your rates to go through the roof.
The safety of your vehicle and your credit score are other non-demographic factors that go into calculating your car insurance rates. Insurers also assess how safe the vehicle is that you want to be covered. Not only will they look at the vehicle's design and safety features, but they'll also look at the age of the car.
Newer vehicles are more costly to insure, as are more
expensive cars. And while most auto claims are filed because of accidents, flashy cars are targets for thieves. So expect to pay more for coverage on a fancier car.
There's also something called an auto insurance score that’s based on information in your credit report. As reported by
Wards Auto, insurance companies look at how you manage your money as an indicator of prudent or reckless behaviors. So if you owe a lot of money and don't make payments on time, expect to pay a higher rate for coverage than your friend with a sterling credit history.
What makes your car insurance more expensive?
Let’s break down how companies use your risk as a driver to decide what to charge you. Auto insurers want to know how likely you are to file claims. You file a claim when you get into an accident, if your car is stolen, or if it’s damaged from things like a fire or falling objects.
However, most claims are filed because of accidents. That’s why insurers want to know how likely you are to get into an accident compared to an average driver.
After evaluating your driver information, insurers place you into one of three categories: preferred risk, standard risk, and high-risk. Those who are less likely to get into an accident and meet other standards are usually placed in the preferred risk category. On the other hand, drivers that are more likely to get into an accident are placed into the high-risk category.
Since high-risk drivers typically get into a greater number of accidents, they file a greater number of claims. Insurers will be responsible for larger and more frequent repair costs. As a result, they charge those in the high-risk category more.
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