Car insurance premium rates can feel arbitrary and unjust to many of us. What actually goes into them — and why?
Turns out, it’s not so arbitrary.
Your rate is actually determined through a complicated algorithm aiming to predict how likely you are to cost your provider money.
“Depending on the state, we may use your vehicle type, where you live, gender and age amongst other (factors) to determine your rate,” says Progressive Insurance spokesperson Ron Davis.
We dug into just what these factors are and why they’re included to help you understand where your rate comes from — and what you can do to reduce it.
What Affects Car Insurance Rates?
Here’s what you probably know when it comes to car insurance rates.
Let’s start with the obvious: your driving record.
“Your driving record and a continuous car insurance history are two important factors,” Davis says.
Even minor violations, like a speeding ticket, can affect your rates 20% to 40%, according to Insure.com. “If you have a major violation, like a DUI, your rates can go up 100% or more due to the combination of lost discounts and increased rates.”
The number, frequency and circumstances of your insurance claims will also be a major factor. More claims, especially if you’re at fault, make you riskier to an insurance company, so your rate will be higher.
Your age and driving experience will have a major impact.
It’s not about discrimination. As Insure.com points out, it’s all about the numbers.
“Young, novice drivers have statistically shown to be immature behind the wheel, easily distracted and to crash — a lot — so they are the riskiest category of drivers to insure,” the site explains.
What are the parts of the algorithm you don’t know about? Here are seven surprising factors that may affect your car insurance rate.
1. Your Sex
In most states, your sex can directly affect your rate.
Men typically drive more miles than women and tend to be less safe — not using seatbelts, drinking and driving, and speeding, according to a Insurance Institute for Highway Safety study.
Those differences — and the rate difference they cause — diminish with age.
These states do not allow your sex to affect car insurance rates:
- North Carolina
2. What Kind of Car You Drive
First, let’s debunk a big myth: Red cars don’t cost more to insure.
“You may have heard the color of your car is used in calculating car insurance rates,” Davis explains, “but this is something we don’t even ask for when you get a quote from us.”
However, the make and model of your car could make a difference.
Different cars cost different amounts of money to insure. That’s because data shows certain cars are more likely to be in accidents or have insurance claims filed.
For example, “Sporty cars tend to be driven in ways that lead to more crashes,” Russ Rader, spokesman for the Insurance Institute for Highway Safety told Bankrate. “They also tend to be driven by younger, riskier drivers.”
An insurance company will also look at your car’s purchase price, the typical cost of repairs and how it performed in safety tests — all factors that will determine how much it might cost them.
3. Where You Live
“Drivers are sometimes surprised to learn that where you live can impact your rates,” Michal Brower, a State Farm spokesperson, told us. “But once you consider why, it makes sense: If you live in a big city with tons of traffic, you are more likely to get in a wreck than if you live in an extremely rural area with little traffic.
“Generally, due to higher rates of vandalism, theft and accidents, urban drivers pay more for car insurance than do those in small towns or rural areas.”
Weird regional data may affect your rate, too.
My mom told me her rate went up when she moved from a relatively urban county in Wisconsin to a more rural county… where deer-related collisions are more common. It all adds up!
The car insurance laws in your state could also affect your rate, according to NerdWallet.
Different states require you to have different types of coverage, so you could wind up paying more just by moving to a state that requires more comprehensive insurance coverage.
4. Your Marital Status
Drivers who’ve never been married are twice as likely to be in a car accident as married drivers, according to a National Institute of Health study.
Why? Well, being married is kind of boring, statistically.
“Married couples have been found to be less active and safer than single drivers, resulting in fewer accidents and claims,” reports Insure.com.
It adds, “Car insurance rates can be from 5% to 15% lower for married couples due to their marital status.”
Massachusetts is the only state that doesn’t allow auto insurers to use marital status to set rates.
5. Your Credit History
Ah. This again.
If you’ve lived with a poor credit score, you know it pops into your life unexpectedly.
“Though it may be controversial, research has shown that those with lower credit scores (typically under 600) are more likely to file more claims, file inflated claims and even commit insurance fraud. You’ll likely see a hike in your premiums due to a low credit score,” Insure.com reports.
A University of Texas Study also found those with lower credit scores incur more car insurance losses and higher claim payouts.
Only California, Hawaii and Massachusetts don’t let insurance companies use credit scores to determine your rate.
6. How You Use Your Car
This is important, especially if you make your living through the sharing economy.
If you use your car for business — including ridesharing and food delivery — be sure to check whether it’s covered under your personal insurance policy.
“You may need a business-use or commercial policy instead and be voiding your personal policy by using your car for business,” Insure.com reports.
Unfortunately, these policies will probably cost you more than a personal policy. But they’ll also cover you in case anything happens while you’re driving for business.
7. The Length of Your Commute
Even if you work for an employer, your commute could affect your insurance rate.
“You insurer can try to determine from the length of your commute if you head into a metro area from your rural or suburban home,” Insure.com states.
“If you live outside of Atlanta, for instance, but your commute is 30 miles, your insurer can predict that though your local area is low risk, your commute into the heart of a heavily populated metropolitan area puts you at greater risk.”
Moving into the suburbs might not be as big a money-saver as you expect.
How to Keep Your Rates Down
“There are several things you can do to try saving money on car insurance,” Brower says. He recommends you:
1. Buy a Cheaper Car
Generally, the more expensive the car, the more expensive it is to insure. You can save money upfront and over time by sticking with cheaper cars.
Want to make sure you’re still getting a quality vehicle? Check out our list of the cheapest (and most expensive) cars to maintain.
2. Look Into Your Car’s Safety Rating
“Insurers often increase premiums for cars that are a greater risk for damage or occupant injury,” Brower says.
Purchasing a car you know is safe will be better on your wallet — and your peace of mind.
3. Ask About Discounts and Bundles
You could get a discount or refund on your car insurance for a being a good student, insuring multiple vehicles, avoiding accidents and more.
“Most car insurers provide discounts to student-drivers who maintain good grades,” Brower says. “In some states, younger drivers are also able to take driver safety courses that will lower premiums.”
4. Drive Less Often and More Carefully
Consider joining a carpool, or take alternate transportation when possible. Driving fewer miles could help reduce your premium.
And when you drive, be careful.
“Safe drivers can take their rates into their own hands with usage-based insurance programs like Progressive’s Snapshot,” Davis explains.
“Snapshot offers discounts by collecting information on your actual driving habits. Drivers who avoid unsafe practices such as hard braking, rapid acceleration and driving late at night can earn a discount.”
“Insurers love a clean driving record,” Brower added.
The drivers sharing the road with you will love it too!
5. Shop Around
Don’t settle for the first quote you get.
“Rates can vary by carrier so we encourage people to shop around and find the right coverage at the right price for them,” said Davis.
He pointed out several surprising ways Progressive offers to save money on car insurance:
“Drivers can save simply by starting a policy online, bundling their auto insurance with another product (like renter’s insurance), having multiple cars on a policy, paying in full or even being a good student,” he says.
Before signing up, make sure you do your research and find the best deal for your situation.
Want to Save Even More?
We know you might not have control over all of these factors.
Maybe you don’t want to leave your job or move to a different city just to save money on car insurance.
Do you think you could go without a car altogether? If you want to shed this cost, read our post about one Penny Hoarder who lives car-free with three kids in San Francisco.
If you can’t get rid of the car, try recouping your costs. Check out these seven ways to make money driving your car.
Your Turn: Are you surprised by the factors that determine your car insurance rates?
Dana Sitar (@danasitar) is a staff writer at The Penny Hoarder. She’s written for Huffington Post, Entrepreneur.com, Writer’s Digest and more, attempting humor wherever it’s allowed (and sometimes where it’s not).