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How Your Auto Insurance Rates Are Figured

Processing Your Auto Insurance Rates

Auto insurance companies don’t just take a “stab in the dark” to figure out what your auto insurance rates should be.  Neither do they make an educated guess.  It’s all very scientific.  Well, sort of.  You see, they gather lots and lots of statistics, much of it based upon your demographic information.  They use this to put together a risk profile for you and their insurance rating system spits out a figure.  The insurance companies are like a casino in a way.  They make sure the odds are stacked in their favor.  The actuaries are very good at figuring the odds.  But their system for establishing your auto insurance rates is even better than a casino in that you are naturally doing everything in your power to help them make sure you come out a loser… You’d rather pay the insurance premiums and never have an accident where you need to collect.  But you’re glad to pay for that peace of mind, and more than happy to cash in if the circumstances require it.

Key Determining Factors for Auto Insurance Rates

One of the most important factors in determing what your car insurance rate will be is where you live.  Just like your propensities as a driver, so too is your location a matter of cause and effect.  If there are more drivers in a particular area (and more uninsured drivers especially), your car insurance premium will be higher.  Besides where you live, your age, gender, and marital status are among the key factors in determing what your rate will be.  Is this unfair profiling?  Not really, because the insurance company has the statistics to back up their insurance rating system, and it’s nothing personal.  If you are a teenager, odds are that you are much more likely to get into an accident than someone in their late twenties all the way up to about age 64.  Then beyond that age the probabilities revert back to being more prone to accidents.  Females are also less likely overall to get into car accidents.  Someone who is married is considered by the insurance companies to be a better risk than a single person.  Does marriage make you more stable and cautious?  Insurance companies sure think so.

Other Considerations for Auto Insurance Rates

The above factors aren’t the only things that insurance companies look at to determine your insurance rate.  It just makes sense that the auto insurance companies take a good look at your driving history and base a good part of their formula on that.  If you have been in several accidents, in all likelihood you will probably get into more (at least that’s how the insurance companies look at it).  And if the frequency of your accidents is high enough, you’re going to pay a real premium for your car insurance premiums!  Beyond your driving history, another couple of factors are your credit history and the type of car you drive.  Why your credit history?  A few reasons for this: if you don’t pay your bills, you are a greater credit risk to the company.  Just like those with poor credit have higher interest rates on loans.  Another factor may be that if you have bad financial habits (not paying on time, getting behind on your payments), you are more likely to exercise careless behavior overall, and that could definitely spill over into your driving.   Do you drive a sports car?  A fast car may be more potentially risky for an auto insurance company to insure.  It’s kind of like the philisophical argument that guns don’t kill people, people do.  A particular make and model by its very nature may influence a person to drive a certain way.  You’re not going to be zipping down the freeway 100 mph in a Ford Pinto!

The Final Breakdown for Rates

There is a base rate and a rating factor.  The base rate is what a person with a really good risk profile could get in terms auto insurance rates.  If you have a rating factor of 1 that means you are on par with being a good risk for the auto insurance company to take on.  It goes up from there.  Hypothetically speaking, if your rating factor is a 2 than that means you are going to pay twice as much as a good driver would for car insurance coverage (good luck!).  But companies are going to weigh your risk profile a little differently, so it makes sense if you are looking for cheap car insurance to do a bit of comparison shopping before you settle in on one company.