What factors go into calculating car insurance?

It can be frustrating shopping for insurance, especially if you don’t understand what goes into the cost of your premium. Most people ask, “Why am I paying this dollar amount for insurance?” at least once while looking for a good rate.

So why are you paying that money for insurance? What factors go into calculating your personal car insurance rate? Let’s take a look.

How car insurance works

To understand rates, we need to look at how car insurance works.

You know that driving a car comes with certain risks—the car might be damaged, you might get into an accident, or any number of other risks. In a world without insurance, you might decide to set aside a little bit of money every month as a precaution against that.

But if it’s just you saving, you’re bearing all the risk yourself. Say you buy a new truck and total it. Now you’re on the hook for the vehicle’s replacement cost, and it might be hard for you to have enough money saved to take care of that. You’re paying all the money in, which means you’re covering all the risk.

Insurance takes that risk and spreads it out among a lot more people. That means you pay less money in and gain more benefits, because the overall risk is lower. But what that also means is that the insurance company wants to know how much of a risk you are personally — are you going to take more out of the pool than you put in, essentially.

Your personal risk profile

Insurance companies use publicly available information and their own internal numbers to develop risk profiles. You may be a perfectly safe driver. But if you’re a 16-year-old male driving a brand-new Ford Mustang GT, your premiums will be very high because the groups you fall under are at higher risk.

Many factors apply to your car insurance rates. Here are the ones that matter the most:

  • Location. This applies both on a state and zip code level. Different states have different mandatory coverages, which can raise or lower rates. In addition, some zip codes have higher risk factors for things like fire, flood, hail, or theft.
  • Age/experience. Teenage drivers and less experienced drivers are much higher risks because of recklessness or greenness. In addition, older drivers (past late 60s or early 70s) start getting higher rates because of decreased physical capacity and higher injury risk in accidents.
  • Gender. This often ties into your age group. Young male drivers are the major outlier here, as they are much more likely to get into accidents.
  • History. Accidents, tickets, and claims will all make your premiums go up, sometimes significantly.
  • Mileage driven. The more miles you drive, the more likely it is something will happen.
  • Vehicle type. Car safety, replacement cost, and behavior of other drivers who own the vehicle all play into this. Theft likelihood does too. Commonly stolen vehicles often have higher premiums.

These are just a small handful of the factors that go into calculating your car insurance rate. Sound complicated? It is — but we make it simple for you. Contact us today to get a free quote.