You’ve probably wondered what factors auto insurance companies use to calculate your insurance rate. There are basically nine major factors that auto insurance companies use. I will list each one of them and give an explanation as to how they affect your rate. I get asked all the time, “Why does my neighbor have higher coverage than I do yet still pays a lower auto insurance rate?” …… The answer to that question is one of two things: Either (A) it’s because of a combination of the nine factors listed below, or (B) your neighbor did a better job of shopping around for auto insurance than you did.
The thing you need to keep in mind is that no two auto insurance companies prioritize or weigh these factors exactly the same. Every company does their own thing when it comes to how they calculate auto insurance rates. Therefore, there is no way for me to prioritize this list. But you’ll still get a good understanding of what goes into calculating auto insurance rates. So let’s get started with these factors……
1. Age – Driving ages usually range from 16-85…. Drivers toward the outer parts of that range tend to pay more than people in the middle of that age range. That is, someone in their 40’s, 50’s or 60’s will pay less than teenagers or drivers in their late 70’s or 80’s. But again, each company sets those age ranges differently.
2. Location – While traffic crash and crime statistics do play a part, the size of the town you live in usually is the biggest indicator…. Generally, people who live in smaller towns pay less than people from big cities.
3. Residential Status – Homeowners pay less than renters do… Being a homeowner usually includes a big discount with most companies.
4. Marital Status – Married drivers pay less than single, separated or divorced drivers. You might think this is silly and perhaps unfair. But crash statistics don’t lie, and married people tend to be in fewer accidents than unmarried people. As far as people who are widowed, some companies classify them as still being married, while other companies classify them as being single.
5. Credit Rating – If we tried to prioritize this list by importance, credit rating would jump all over the place from one company to the next. Some auto insurance companies make credit score a huge factor, while others only figure credit score in as a tiny factor. Some companies check credit scores like a credit card company would. Other companies only do soft credit pulls…. The good news is that shopping around for auto insurance doesn’t affect your credit like shopping around for credit cards does… Some credit scores get dinged by having multiple credit card or loan inquiries…. Fortunately, that’s not the case with auto insurance. It doesn’t hurt your score at all to shop around for auto insurance.
6. Driving Record and Claims History – This tells what accidents, tickets and prior insurance claims you have. These are obtained by two major sources; your MVR (Motor vehicle report from the state BMV) and your CLUE score (your auto insurance history). Obviously, someone with a clean record will pay less than someone with dings on their driving record.
7. Having Prior Insurance – This also tends to be a big factor with most auto insurance companies. Having at least six months of active auto insurance coverage usually gets a big discount. Some companies will offer even bigger discounts for having active coverage farther back than six months. Some companies will also offer bigger discounts for having liability coverage that is higher than state minimum levels.
8. Gender – Men may joke about “women drivers = no survivors”, but the reality is that it is not true. Statistics show that women are the safer drivers, and thus pay a slightly lower rate than men.
9. Vehicle(s) insured – This is broken down in two parts:
Those are the nine major factors. Auto insurance companies prioritize them any way they want to. That’s why it’s important to shop around for auto insurance at least every two years.
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Dan Lyles is an Independent Insurance Agent serving Ohio, Indiana, Michigan, Pennsylvania, Virginia and West Virginia..