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How Insurance Rates are Calculated


Auto insurance companies all use different formulas to determine how much you will pay to be covered. That is one reason you need to compare auto insurance rates from several providers to see which one will give you the best rates. Some of the factors insurers use to calculate premiums are shown below.
  • Type of vehicle you drive - A large part of premiums insurers come up with are based on the type of vehicle you are insuring. If you drive a vehicle that has an above average safety rating, you will pay less for the same coverage on a vehicle with a lower safety rating. To view vehicle safety ratings, you can visit the Insurance Institute for Highway Safety website.
  • Where you live - In the United States that are state-by-state minimum requirements for car insurance that will play a large part in how much you pay for auto coverage. If you live in a large city with lots of traffic, you will generally pay more than someone that lives out in the country where there is less traffic. However, if you live in the country and drive a long ways to work every day, this discount may not apply, since you are driving more, there is a greater chance of being in an accident.
  • As just mentioned, the distance you drive will play a factor in how much your monthly premiums are. If you have a long commute, any savings from living in a less populated area may be wiped out because of the distance you drive every day.
  • Your credit score - Your insurance score is partly based on your credit rating, so if you have a low credit score, this can lead to higher premiums. This is because insurance companies have found a direct correlation between credit scores and the chance of filing an insurance claim. One way to pay less for auto insurance is to raise your credit score.
  • Your driving record - This is one of the most important items auto insurance providers look at when calculating rates. If you are a safe driver you should pay less for coverage; however, if your driving history has some tickets or accidents your rates will be higher. The only thing that will remove these from your record is time, which is why its important to provide accurate information for car insurance quotes. Generally, a speeding ticket or other infraction will stay on your record for 2-5 years, and insurance companies will have access to this information and can use it to calculate rates.
The factors listed above are just some of what car insurance companies look at when calculating rates. There is no way to know which company will provide the best deals on insurance coverage without comparing prices from several insurers. To find out if you are getting the best rate, you will need to get quotes from as many insurance companies as possible to see which one offers you the lowest rates.

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