It’s no secret that car repairs can be costly and repair shops and other drivers can be stressful to work with. Insurance companies were established to help customers who need repairs but don’t have the immediate funds to make those repairs.
While insurance companies are in the business of protecting drivers from each other and themselves, they’re also interested in keeping their own doors open and paying their employees. This is done by charging customers appropriately for their protection, with the safest drivers paying less and the more reckless drivers paying more.
This distinction mostly takes place in the quoting phase. When an insurance agent provides a quote to a customer, they’re asking them a series of questions designed to help the company understand how big of a risk this driver is to both themselves and the insurance company’s wallet.
The company will then use this information to decide whether the insured is the type of risk that the company wants to take a chance on. Each company has the answers to these questions rated differently but in general, this is the information they’re trying to ascertain.
1. Driver Information
Premium rates–or the amount the customer will pay monthly for coverage–vary by a wide margin based on the driver’s age, how long they’ve been driving, and how responsible the company believes them to be. A standard rule of thumb is that younger drivers and older drivers pay more than middle-aged drivers. While it’s true that the older an insured is the more road experience they have, it’s also true that vision, hearing, mental acuity, and reaction time all tend to decline with age.
The gender of drivers matters to companies as well: young male drivers will pay more than young female drivers because companies see them as more of a risk for driving in a way that puts themselves and others in danger. Young men typically pay more for the same coverages than their young female counterparts up until the age of 40 or so when women start to pay slightly more than men for the same coverages.
Whether an insured is married also has an impact on monthly rates as drivers that are married tend to drive safer and have fewer accidents than single drivers.
Different areas around the country have different levels of risks, such as crime or more expensive vehicles. In an area that has higher crime rates, an insured’s vehicle is more likely to be vandalized or encounter damages from other parties that have no means of covering the damages if they’re at fault.
In areas with more expensive vehicles, any encounter is bound to cost the insurance company more money to fix. Where you park your car during the day or at night can have an impact on insurance premiums as well. Certain insurance companies will give discounts for parking in a private garage space overnight.
3. Your Driving Habits
Driving habits were previously tracked through self-reporting, but now more insurance companies are switching to car plug-ins or phone apps to track and score an insured based on their driving habits.
Throughout the tracking period, the app or plug-in will track a driver’s performance, location, handling, conditions, how many times an insured breaks, and how hard and how many times they speed. These are compiled into a list that will be analyzed and scored.
This score will tell the insurance company how safe of a driver the insured is while taking everything from their driving location to whether they drive during the daytime or nighttime into consideration.
If drivers stick to safe roads and conditions, their scores will increase. If they’re prone to speeding or if they spend a lot of time in rush hour traffic, their score could decrease. This score gives the insurance company an accurate look into each of their drivers as a whole and can lead to further premium adjustments in the future.
4. Your Driving Record
This is one of the main ways that an insurance company will decide whether they can insure a customer or not. Insureds with clean driving records can expect to pay up to 40% less than those with heavy activity on their driving records. While at-fault accidents and moving violations are typically the most expensive types of accidents to have on a driving record, not-at-fault accidents can also have an impact on the monthly premium for an insured.
The length of time between chargeable accidents depends on the company that an insured is quoting with. Some companies only count incidents within the past three years while others consider incidents within the past 5.
Some companies count everything during the chargeable period, from at-fault accidents to tows, while other companies only look at collisions that result in damages. The way an insurance company weighs incidents on a driver’s record can vary from company to company, but these incidents will almost always cause the premium to go up.
5. Your Credit Score
Several insurance companies will look at an insured’s credit score when quoting for an auto policy. Because credit scores indicate an insured’s ability to make on-time payments and their likelihood to file a claim, drivers with poor credit tend to pay more for the same coverages when compared to drivers with good credit. The only three states that aren’t allowed to consider an insured credit score when quoting them for car insurance are California, Massachusetts, Michigan, and Hawaii.
6. Your Insurance Coverage History
Insurance companies will often charge insureds who have never had coverage before more than they would charge a seasoned driver and current coverage holder because they have no way of verifying their driving habits, so they charge more to incur the risk.
Insurance companies will also charge drivers more for unexplained gaps in their coverage. Insureds that move to other countries or get rid of their vehicles and therefore have no reason to carry insurance may be exempt from this requirement, but those that let their coverage lapse can expect to pay more upon reinstatement.
For those who don’t have their own vehicles but often borrow or rent vehicles, or those who don’t need full coverage but would like to maintain some sort of coverage, a non-owner insurance policy would be a good option to keep a policy just in case.
7. Car Details
The type of car can make a big difference in the price of a policy. The main reason is that the company is thinking ahead to a potential accident and trying to account for how expensive the vehicle will be to fix. When comparing a Bently, BMW, or a Hybrid vehicle to a standard Toyota, Nissan, or Ford with the same coverages, the high-end vehicles will almost always be more expensive to insure.
An insurance company will also give a cheaper rate to vehicles that are considered to be on the safer side, as the more safety features they have, the lower the risk of serious injury or serious damage that they’ll have to repair.
Vehicles that inspire speed and recklessness will be rated as being more expensive than the standard SUV or family vehicle. They’ll also price vehicles a little higher because the likelihood of them being stolen is higher than other vehicles.
8. Insurer and Insurer-based Discounts
One of the major ways an insured can bring down their rate is to take full advantage of all the discounts that an insurance company offers. Companies have been known to offer anywhere from 8-to-20+ discounts to get insureds the best prices possible. Common discounts include, but aren’t limited to:
- Bundling: applied when insured’s have several products under the same company
- Good student: applied when a young driver earns a 3.0 GPA and above
- Safe driver: applied when a driver is deemed a responsible, safe driver after some form of measurement, usually in the form of a vehicle plug-in or an app on the driver’s phone
- Company longevity: applied when a driver has been with the same company for several years; usually applied during the quoting phase with a new insurance company
- Defensive driving: applied when a driver shows proof of a recently taken driver’s safety course
- Accident-free: applied when an insured has gone a certain amount of time without an accident or ticket
- Low mileage adjustment: applied when a driver drives less than a certain amount of miles for the year
- Military: applied to active duty military members
- Student away: applied when a young driver of high school or college-age is away from home and the insured vehicles for a majority of the policy term
- Autopay or Paid in full: applied when the insured sets payments up to be automatically deducted from a bank account, or when the policy is paid in full
9. Policy Details
The factor that insured’s have the most control over when it comes to their policy price is their policy details. The coverages that they select for their policy make up the premium, which is then split into payments, usually either 6 or 12 depending on how many months the policy term will last, and paid back over the policy term.
Selecting the minimum requirements for each state’s liability coverage will make the overall policy less expensive but those limits might not cover an insured as well as slightly higher coverage limits. This will leave an insured open to litigation if their preselected limits don’t fully cover the other party’s repairs after an accident. Because liability coverage is required for an insured to be considered insured, bodily injury liability coverage per person, bodily injury liability coverage per incident, and liability coverage for property damage are the only coverage options that must be selected.
The remaining options are entirely up to the insured. An insured may choose to forego the comprehensive and collision coverage as those options can add quite a bit to the monthly premium. In some cases it makes sense to do so: some insureds will remove those coverages if the car is completely paid off or older than 10 years old. Some insureds will have one of those two coverages. If an insured chooses to add comprehensive and collision coverage to their policy, a general rule of thumb is the higher the deductible limit, the lower their monthly premium will be.
A licensed insurance agent can take a look at the policy and let an insured know what might be best for their coverages and their pocket while going over a quote for coverage.