Explainer: Auto Insurance Costs

Just a month into the new year, insurance and paying premiums is top-of-mind for consumers. As industry professionals, we know not everyone is aware of how premiums are calculated and what factors play into the cost of insurance.

Continue reading this month’s blog for an explanation of how insurance companies calculate auto policy prices. While not every company is the same, you can expect underwriters to consider any of the below to calculate the cost of your policy. Stay tuned for the home insurance premium pricing explainer coming soon!

  • Your car and how much you use it
    • There are several variables to account for regarding the type of vehicle you drive, including the cost of your car and potential repairs, the chance of theft, its engine size, and safety features.
    • The more miles you drive, the higher the chance you’ll get into an accident.
  • Driving record
    • Your driving record may be the most obvious factor when it comes to the cost of auto insurance.
  • Location
    • Often, drivers in urban areas pay more than folks in suburban or rural areas due to higher crime and accident rates. Your rate can also change depending on the security of where you park your car, such as the street or a secure garage.
  • Demographics
    • Individuals aged 16 – 25 are typically at a higher risk for accidents, whereas more mature drivers are a lower risk.
    • Data shows women get into fewer accidents than men, have fewer substance-related driving infractions, and the severity of accidents is typically lower.
    • Race and religion are NOT used to calculate your rate, and it’s illegal to do so.
  • Your credit
    • You know what a credit score is, but did you know the insurance industry also uses a credit-based insurance score? It’s a statistical calculation to gauge your likelihood of filing a claim and the projected cost.
  • Type and amount of coverage
    • Your deductible amount, type of policy, and limitations on basic coverage affect how much you’ll pay.

Source: Insurance Information Institute