Key Factors that Influence the Cost of Your Insurance Premium

Car insurance premiums are among the highest expenditures for car owners. According to data, full coverage car insurance costs about $2,314 annually, with minimum coverage costing $644 annually.

With such a high variance in premium rates, it’s clear that several factors will affect how much your insurer charges for your car insurance premiums. Some of these factors include your driving habits, the age of the vehicle, deductibles, the car’s value, and location.

Here’s what you need to know about car insurance premiums and what affects your rates.

What is a Car Insurance Premium?

A car insurance premium is the money you pay the insurance company to renew or purchase a car insurance policy. The insurer gives you a policy document after paying the premium, which acts like a receipt, proof, or promise that they’ll process your car insurance claims based on the Policy Wording.

The policy document and Policy Wording act like a contract that legally binds you and the insurer, outlining the terms and conditions of the policy.

However, paying a premium doesn’t guarantee that the insurer will pay out all claims made by the policyholder. Instead, they’ll strictly abide by the Policy Wording, which will determine whether a claim is payable.

The Factors That Influence Your Car Insurance Premiums

The price of car insurance premiums can vary significantly based on various factors. And in an environment where, according to data, car insurance premiums have risen by 20% over the last 12 months leading to February 2024, it’s crucial that you understand where and why you might be paying more.

Here are the top factors.

Location

Where you live can significantly impact the amount of car insurance premiums you pay. Typically, locations with a higher risk of car theft, vandalism, accidents, and a high population density have higher auto insurance premiums than rural or suburban areas with opposite qualities.

Additionally, states may impose minimum liability insurance requirements, which will alter the price of your premiums at that location based on the minimum coverage needed.

For instance, Florida, Kansas, Hawaii, Massachusetts, and New York require drivers to carry personal injury protection apart from liability insurance. This form of insurance pays for you and your passenger’s medical bills in case of an accident.

Driving History

Your driving history plays a significant role in determining your auto insurance rates. Typically, accumulating speeding tickets or accidents can cause an increase in auto insurance premiums.

Insurers will look into your driving record for the last three to five years to determine your risk factors and adjust the premiums accordingly. However, having more severe violations, such as multiple speeding tickets and DUIs, can significantly increase your premiums or even cause the insurer to consider your policy more deeply.

Driver’s Age

The driver’s age also significantly influences the premiums charged for auto insurance. Typically, young and inexperienced drivers pay higher premiums than older individuals. This difference in premiums between a teen driver and an older, 50-year-old driver can be $5,500 annually.

This steep variance in premium rates comes from the evidence that younger drivers, especially teen drivers, are likelier to get involved in accidents than older drivers. However, since the risk is significantly higher with teen drivers, age tends to be less impactful at 20 and almost unconsidered after 25.

Moreover, after reaching a low point at the age of 50, most auto insurance premiums tend to rise again at the age of 70.

Credit Score

Despite being often overlooked, your credit score significantly affects your auto insurance premium rates. Typically, drivers with a poor credit score file more claims than drivers with better credit.

Moreover, drivers with poor credit scores tend to file more expensive claims than those with good credit. Therefore, insurers will typically charge higher premiums for drivers with a bad credit score due to the higher risk and claims.

Driving Experience

Driving experience is a simple rating factor for car insurance premiums. Typically, drivers with more experience pay lower car insurance premiums than inexperienced drivers since they’re less likely to make costly mistakes and get into accidents.

On the other hand, newer drivers are deemed higher risk, resulting in higher auto insurance premiums.

Vehicle Make, Model, Variant, and Age

The make, model, variant, and age of your vehicle also significantly impact your auto insurance premium rates. For instance, insuring a premium luxury sedan will cost more than a policy for a hatchback. Moreover, the car’s composition, engine capacity, and type will directly affect the cost of premiums.

The age of the vehicle also significantly influences the cost of premiums due to two crucial auto insurance concepts. These are Depreciation and Insured Declared Value (IDV).

Depreciation represents the reduction in asset value due to natural wear and tear over time, while IDV represents the approximate current value of a vehicle.

Older cars will have a higher depreciation and low IDV, making it less costly to insure them than a new vehicle.

Add-Ons

You’ll be fine with the minimum legally mandated auto insurance coverage in most states. However, if you want extra security and coverage in the form of add-ons, you’ll pay higher premiums.

Some add-ons you can get include zero depreciation, passenger cover, engine protection cover, and 24/7 roadside assistance. The complete list of add-ons available to you will depend on the insurance provider. Consequently, the extra premium charges will also vary based on the insurer.

Marital Status

Your marital status also significantly affects how much car insurance premiums you pay. Married drivers pay lower premiums due to various factors, primarily age and experience. Often, auto insurers predict that married drivers are older and have children, influencing them to be more careful on the road.

For most carriers, you can even add your spouse to your policy without a hefty premium penalty, even if they rarely drive your car.

Get the Best Rates from a Trusted Insurer

Despite being one of the highest expenses for a driver, auto insurance should not always cost you an arm and a leg. Talk to an insurance expert and learn the best policy and rates for your scenario.