When it comes to car insurance premiums, the more risk you represent the higher your premiums will be. Insurance companies use many different factors to indicate risk. Some of these risk indicators, like your age and gender, you have no control over. Others, however, are directly under your control. Understanding these indicators can not only help you in reducing your premiums over time, they could save you from having to make an expensive insurance claim.
Your coverage and deductible
While having a high amount of coverage and a low deductible may not increase your risk of getting into an accident, it does increase the risk the insurance company is assuming. If your policy limit for personal injury is $50,000 per person and your medical bills are over that amount, the company would only have to pay out $50,000. However, if your limit was $100,000, they could be on the hook for much more. Similarly, having a higher deductible decreases the risk that a policyholder will make a claim. Few people will file an insurance claim for a $500 fender bender if the deductible is $1,000.
Your driving record
Insurance companies use your driving record to calculate your risk of having an accident. If you have caused accidents in the past, if you have had speeding tickets or if your record shows that you have driven while impaired, the insurance company will assume that you are at risk for accidents in the future and will increase your premiums accordingly. If your record remains clean after your last infraction, your premiums will decrease.
Your gender, marital status and age
There is nothing personal about the risk associated with your gender and marital status. It's simply that statistically, males are more likely to be in an accident than females and single drivers are more likely to be in an accident than those who are married. Statistically speaking, the more experience you have behind the wheel the less likely you are to cause an accident, and insurance companies use age to determine driving experience.
Your vehicle
Just as insurers keep statistics on drivers, they also track statistics on vehicles. Based on insurance claims and industry safety reports, insurance companies determine the risk of a claim different vehicles represent. Before buying a vehicle, check out its safety rating and compare its likelihood of attracting car thieves to other models.
Your credit rating
Of the 130 items in your credit report, insurers use about 30 to determine your risk for making an insurance claim. In fact, a good credit rating could save you several hundred dollars on your annual premium. Some states, like California, don't allow credit ratings to be used as a factor; however, they are used in most of the country.
Where you live
If you live in a high-crime area where there are a lot of car thefts and vandalism, or you live in an area with a lot of car accidents, you are at more risk of filing an insurance claim. This is why drivers in the city generally pay more for insurance than those who live in small towns.
How often you're on the road
The likelihood of getting into an accident is directly related to the number of miles you drive each year. Drivers who use their cars for business and long-distance commutes generally pay higher premiums than those who don't drive as often. Reducing the number of miles you drive can reduce your premiums.
Sources
- DMV.org: Deductibles, Coverages, and Car Insurance Rates
- Esurance: How Your Car Insurance Rate Is Determined
- Consumer Reports: How Your Credit Score Raises Your Premium
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