How Your Car Insurance Premiums are Determined
State laws require drivers of motor vehicles to maintain certain levels of car insurance in order to legally operate a motor vehicle. Car insurance premiums can vary widely, even within the same geographic area and it may seem like insurance companies are arbitrarily assigning rates to customers. However, the calculation of car insurance premiums may not be as mysterious as it seems since there are certain things that insurance companies may legally consider when determining rates.
Factors Considered by Car Insurance Companies
- Age: The youngest and oldest drivers tend to pay the highest rates for car insurance. That is because they tend to be in more accidents than middle age drivers.
- Gender: Females tend to pay less for car insurance than males because, statistically, they are in fewer accidents than males.
- Marital Status: People who are married tend to pay less than single people do for car insurance. Married people tend to have fewer accidents than single people.
- Credit Score: Since the 1990s, car insurance companies have been considering the credit scores of potential customers when deciding car insurance rates. Federal credit reporting agencies have been able to establish a link between good credit scores and safe driving records.
- Driving Record: This is, perhaps, the most important factor in determining your car insurance rates. A history of safe driving leads car insurance companies to believe that you are less likely to get into an accident in the future.
- Car that you drive: drivers of older cars may pay less for car insurance than drivers of newer cars because the cost of the damage to an older car is considerably less than it is for a newer car.
- Home address: People who live in low crime neighborhoods typically pay less for car insurance than those who live in high crime neighborhoods. Car insurance companies believe that your car is less likely to be vandalized and that you will be less likely to make a claim for vandalism if you live in a safe neighborhood.
- Your Job: Car insurance companies typically consider how your car is used when determining car insurance rates. If you use your car to get to work and you work a distance from your home then car insurance companies may consider you a higher risk customer because the more you drive, the more likely you are to have an accident.
While car insurance companies may legally consider the factors listed above, it is important to note that consideration of these factors may have a discriminatory effect. For example, if a car insurance company decides to offer lower rates to married people then homosexual couples who live in states where marriage is not permitted may be at an unfair disadvantage. Couples who are in long term committed relationships but who are not legally able to marry may be able to pay lower premiums by explaining their situation to their car insurance company when they apply for coverage.
It is important to be aware of the factors that car insurance companies consider when determining your rate so that you can explain why you should obtain the benefit even if you don’t technically fit into the guidelines that they have established. Then, you may be able to lower the amount that you pay for car insurance each year.
Additional Insurance Law Articles
- What is the Effect of a Traffic Ticket on Your Car Insurance Rates?
- What is homeowner's insurance?
- How can I appeal a denial of a claim on my homeowner's insurance coverage?
- Am I required to have homeowner's insurance?
- How can I file a complaint against my homeowner's insurance company?
- Will homeowner's insurance cover all of my personal property?
- What can I do to reduce my homeowner's insurance costs?
- Will homeowner's insurance cover my vehicles?
- What are some common exclusions and/or limitations in homeowner's insurance policies?
- Why does my homeowner's insurance policy contain Additional Living Expense (“ALE”) coverage?
- What is the relationship between Medicaid and long-term care insurance policies?
- Why does my homeowner's insurance policy contain a provision about Personal Liability coverage?
- What are 'Acts of God' clauses in insurance policies?
- Why does my homeowner's insurance policy contain an Inflation Guard Endorsement?
- Does my homeowners' insurance policy cover mold damage?
- If my home is destroyed and needs to rebuilt, will my homeowners' insurance cover the building permits needed under local laws?
- Do I need special windstorm coverage in my homeowner's insurance policy?
- How do I know how much homeowner's insurance I need?
- What kinds of losses does my homeowner's insurance policy cover?
- What is a deductible, and how high should my deductible be on my homeowner's insurance policy?
- What is the National Flood Insurance Program?
- Can my insurance company refuse to renew my homeowner's insurance policy?
- Do I need special insurance for natural disasters like flooding or hurricanes?
- What do I do if our home is damaged in a hurricane or natural disaster?
- What steps can I take to minimize damages to my home, and thus decrease my insurance costs?
- How can I prepare for potential insurance claims if a natural disaster such as a hurricane is forecast for my area?
- How can I handle my finances in the event of a natural disaster?
- What if I do not have enough insurance to repair and/or replace my home or automobile that has been damaged by a natural disaster?
- How do I know which insurance policy will cover my damages?
- How long will it take for an insurance adjustor to evaluate my damages following a natural disaster?
- Is there any type of flood-related damages that flood insurance will not cover?
- Is there any type of property that flood insurance will not cover?
- Are there separate deductibles that I have to pay for building claims and personal property claims?
- Does flood insurance cover items in my basement?
- What is a “proof of loss” form?
- Do I get to choose who makes the repairs to my home if it is damaged by a natural disaster?
- How is my mortgage lender affected by any insurance claims as a result of natural disasters?
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