Car insurance rates: how are they calculated?

Ever wonder how your car insurance rates are set? If you’ve ever solicited multiple car insurance quotes for coverage, the range of differences between companies and policies may have surprised you. Understanding what goes into car insurance rates and how they are calculated can help you next time you’re looking to renew or change a policy.

Who sets the rates?

Most states have an insurance division or commisisoner that regulates insurance practices in that state, including setting parameters on how much an insurance company can charge for its policies. Within that framework, individual insurance companies will set rates and associated fees. The range of these rates is typically calculated by an actuary who analyzes a range of data to get a good determination of the “risk” involved in insuring set classes of drivers.

What factors go into determining rates?

There are several different elements that are used to determine car insurance rates, including:

• The age, make and model of your vehicle
• Where you live
• Your age
• Your driving record
• The level of car insurance coverage you’re considering

Check out rates and get free car insurance quotes here

What you're covering (and driving) matters

Since car insurance is all about covering the cost of treating injuries you or somebody else receive or damage caused to personal property (yours and others, including cars) during a motor vehicle accident, one of the key factors in determining insurance costs is to consider the type of car the policy will cover. When considering what to charge you for covering your car, insurance companies will look at:

• The value of your car
• The average price of repair costs for the make/model of your car
• The rates of injury during an accident for your make/model of car
• The statistical risk of your make/model of car being stolen

Location matters

Another factor taken into consideration when insurance companies calculate insurance costs include where you live and how often you drive your vehicle. If you live in an area where there is an increased risk of your car being damaged or stolen, (such as in a crowded urban setting) your rates will be higher. The more you drive your car, the higher the chance is that you'll have an accident. Conversely, people who don't drive often usually pay less in premium.

So does your driving record

Your driving record is also reviewed when you apply for insurance. If you've been driving for a long time, you are considered an experienced driver and thus there is less of a chance that you'll be involved in a collision. New drivers pay a higher premium than experienced drivers. If you've been in accidents or have received speeding tickets in the past, there is a greater chance you'll be in another crash and the insurance company will have to pay for repairs. Since you pose a higher risk of being involved in an accident again, your car insurance policy will have higher rates than people who are less likely to be involved in a collision.

Coverage levels and features also matter

The cost for your car insurance will also depend upon the coverage you choose. Most states require a minimum amount of third party (liability) coverage on all car insurance policies, but you can increase that limit and add additional options (endorsements) to your policy. The more coverage you have, the higher your insurance premium will be.

Electing to have a lower deductible will also cause your premium to be higher. In this situation, your premium is higher because the insurance company is assuming a greater financial risk if you make a claim or get involved in a crash. A higher deductible and lower coverage amount puts a higher monetary burden on you, but your insurance policy will be less expensive.

Your base rate is a cornerstone for any car insurance quotes you may receive and understanding what goes into that might help you make a better decision. You can also found out more about car insurance quotes and the process, here.

To be sure you’re getting the best insurance coverage at the best available car insurance rates, it's important to get numerous quotes and do some comparison shopping. Reply! can help you in this endeavor by connecting you to local insurance professionals, today.