Factors That Affect Car Insurance Rates
Update: If you are a Washington state driver, please note the emergency rule banning the usage of credit scoring: Credit Scoring Ban.
Similar to how banks use various elements to determine credit worthiness of a borrower and interest rate of a loan, insurance companies utilize several factors to determine auto insurance rates for a customer’s policy.
There are three main categories of car insurance rate factors:
Vehicle data: Year, make, model of the insured vehicle.
Miles driven: How much the car is being driven is an important factor in premium determination.
Pay-Per-Mile auto insurance only charges you for the miles you drive: great for low mileage drivers.
Vehicle usage: Is this car mainly used for commuting to work or mostly for personal driving? Whether the main usage of vehicle is business or pleasure will impact your car insurance premium.
Garaging address: Location, specially the zip code, of where your car is regularly parked at night will have a considerable impact on your insurance premium.
Insurance score: It is a metric that insurance companies use to assess individual insurance risk based on the consumer report of a customer and the spouse. Each insurance company uses its own formulas to evaluate a consumer report and generate an insurance score. You may request a copy of your consumer report from the credit bureau by requesting it from your insurance agent.
Credit history: Credit history is part of your consumer report and is one of the metrics used by insurance companies to assess your insurance risk. However, most insurance companies do not consider credit score itself as a rating factor.
Marital status: In general, a married couple has a lower rate than non-married individuals.
Age of driver(s): A driver’s age is another key factor in premium determination. Drivers under the age of 25 are considered by most insurance companies as young drivers and typically have higher insurance rates.
Number of years of driving experience: In Washington State, drivers with less than three years of driving experience tend to see higher rates compared to drivers who have been driving longer than three years.
Driving history: Driving history includes any at-fault accidents and moving violations. Some companies may consider the frequency of your claim history regardless if the accidents were your fault or not.
Coverages: Depending on your choice of coverage limits on your dwelling, other structures, and other available coverage options such as liability coverage, your insurance premium will adjust accordingly. The higher the coverage, the higher your insurance premium will be, and vice-versa.
Deductibles: The amount you choose as your deductible, which is your out-of-pocket expense after a claim, will reflect in the cost of your premium. Your insurance policy may have different deductible options for different coverages. Rule of thumb: the higher the deductible you choose, the lower your premium will be, and vice-versa.
Claim history: Insurance companies will always evaluate your history of claim records to assess the probability of future claims. If there has been a high frequency of claims in your past, the insurance premium will likely be higher to reflect a greater chance of future claims.
Prior insurance history: The presence of prior property insurance will always result in a more favorable rating on a homeowners policy. Certain insurance companies may even require their new customers to have a minimum length of continuous prior insurance to qualify.