What Factors Determine Auto Insurance Rates?

When you purchase auto insurance you have a ‘shared risk’.  Your carrier agrees to share the risk as you and family members drive your vehicles.  The company will decide how much premium (payment) is needed in order to share the specific and personal risk that you and your family potentially pose.

Liability coverage is mandatory, required by each state. The required minimum limits vary by state. However, it is seldom wise to drive with minimum coverage. Your carrier will consider the following facts when setting a rate:

• Driving records of all drivers listed on your policy; better records equal better rates – and vice versa.
• Amount of coverage requested – I can not stress enough the need to carry sufficient liability coverage for your vehicles. Repair shop costs soar as the need for talented & proficient employees increases; auto parts costs – even for aftermarket parts - rise with all other commodities; but these are the least costly.  Should your vehicle be involved in an accident that causes a fatality, an attorney will undoubtedly bring a lawsuit, demanding a far greater amount than your policy limits for Bodily Injury. Your carrier is only responsible for the amount that you’ve chosen for your policy.

Collision coverage is optional if you have no loan on the vehicle.  If you have a loan, your lender will place a lien on your vehicle, which will have been presented to your carrier.  This will trigger collision coverage to be placed on your policy, by and for the protection of your lender, if you have not done so. Lenders have no obligation to shop for the best rates, and will add the cost to your loan. A “loss payee clause” is placed on your policy by your lender. The following factors, plus the amount of deductible you choose, will affect collision coverage:

• Year, make and model:  Collision coverage pays for repairs to your vehicle, regardless of who is at fault. Even if someone else is at fault, you can use this coverage, and your carrier will attempt to recover costs, including your deductible, from the other driver or their insurance carrier. A higher deductible produces a lower rate.
• Drivers:  Every driver in the household will be ‘rated’; their driving records are requested from the DMV, and their record and age influences cost. Youthful drivers are typically more expensive to insure, due to inexperience and their potential to be more nonchalant or careless. Factors of youth also apply to liability insurance. To reduce rates, you can “exclude” a problematic driver.

Comprehensive Coverage pays for costs incurred by vandalism, theft, and other non-collision accidents, such as an object striking your car. The following factors are considered for Comprehensive coverage:

• Where the vehicle is garaged:  Your zip code matters when you purchase auto insurance.  Crime rates, specifically auto theft rates, are a factor when determining your premium.
• The year, make and model of your vehicle:  Some vehicles are more desirable and, therefore trigger a higher premium for coverage.

These are the primary considerations given when an insurance carrier sets your rates. These factors are generally taken into account for a policy that covers ‘normal’ household vehicles. Additional factors apply should you have any ‘specialty coverages’, such as coverage for a vintage vehicle.