10 factors that affect your car insurance rates

Most drivers could be paying too much for their car insurance.
Most drivers could be paying too much for their car insurance.

Editor's note: This article first appeared on CarInsurance.com and is reprinted here with their permission. Click here for the original post.

Either most of us love our auto insurance, or we're just too lazy to shop for new coverage. Unfortunately our complacency could be costing us money.

A recent TransUnion Auto Insurance Shopping Index found that only 15% of people with credit were motivated to compare insurance companies and shop for new car insurance last year.

[Related: 5 steps to cheaper car insurance]

J.D. Power data back up these findings. The research firm recorded retention rates pushing 90% in the car insurance industry, and its 2013 Insurance Shopping Study found that only 23% of auto insurance customers shopped their policies in the past 12 months—a six-year low.

All of this data indicate that most drivers could be paying too much for their car insurance. When you do decide to shop for a new policy, know what factors insurers use to set your rates. Keep reading to learn 10 factors insurers use to set your car insurance premium.

Woman embracing her new car

1. The types of car insurance and how much coverage you need.

While shopping for car insurance can be boring, almost all experts list shopping your coverage online as the No. 1 way to lower your premium.

According to the 2013 comScore U.S. Online Auto Insurance Report, shopping for car insurance online is the most popular way to look for a new policy, with 67% of respondents saying they got a quote online.

Insurers rate risk differently, so there can be huge differences in premium quotes, which is why experts recommend getting quotes from as many insurers as possible, making your computer the go-to tool for lowering your premium. Your computer can shop a large number of insurers quickly, easily and at a time that is convenient for you.

Shop around at least once per year

Penny Gusner, consumer analyst with Insure.com, recommends shopping your premium at least once a year. "But before each renewal period (every six months) is preferred to make certain that you always have the cheapest insurance premium."

Shopping is especially important if a ticket or accident falls off your record. "This will make you more appealing to more insurers," says Gusner. Life changes are another reason to shop around. Getting married, adding a driver or moving to a new neighborhood could result in a lower premium.

Before you fire up your computer and start gathering quotes, you should determine your ideal policy limits. Minimum insurance limits vary by state, but usually are not nearly enough to fully protect you.

Recommended coverage amounts & deductibles

Gusner recommends carrying at least 100/300/50 in liability coverage, which translates into $100,000 per person and $300,000 per accident for bodily liability and $50,000 for property damage liability. That's for the injuries and damage other people suffer if you cause an accident.

You will also need collision and comprehensive insurance if you want your car repaired after it is hit by another vehicle or damaged from fire, vandalism, striking an animal or natural events, like hail storms. Comprehensive insurance also reimburses you for the vehicle's value, minus your deductible, if the car is stolen.

Let's not forget the deductible. "While $500 is a common choice, you can save money if you go with a higher deductible, such as $1,000," advises Gusner.

The deductible applies to collision and comprehensive claims.

Man searching for credit score on computer

2. Credit score

According to research firm Conning & Co, roughly 92% of insurers use your credit information as a factor to determine rates, so a low credit-based insurance score will raise your premium (unless you live in California, Hawaii or Massachusetts, which don't allow the practice).

It all goes back to risk. Studies show that people with bad credit tend to file more and higher claims. While the rate increase will vary, expect to pay between 20% to 50% more if your credit is bad.

male teenage driver in red car

3. Birthdate/Age

Your age will impact your premium, especially if you are young or in your twilight years. Statistics from the Insurance Institute for Highway Safety (IIHS) show that the fatal crash rate for teen drivers is three times those of drivers over the age of 20.

On the other end of the spectrum, older drivers tend to be involved in more accidents. CDC stats show that fatal crash rates increase around 75 and skyrocket at age 80.

newlyweds in car

4. Marital status

Statistics show that married drivers are involved in fewer accidents and are issued fewer tickets than single people. In some cases, insurers will even drop the rates of drivers under 25 if they tie the knot. Combining or bundling policies with your new spouse can also send your premium down.

Red Mini Cooper in driveway of house

5. Type of vehicle

The type of car you drive will have an impact on your premium quote. Insurers will take into account the car model's claims record. As a result, if a lot of younger drivers who have accidents drive the same model as you, you may pay a higher rate. Have your car's Vehicle Identification Number (VIN) handy when applying for new coverage.

man driving at night

6. Vehicle use

How you use your car will impact your premium. If you use your vehicle for commercial purposes, even something as minor as a part-time pizza delivery job, you need to disclose this. Failure to do so could result in a denied claim if you are in an accident while on a delivery.

If you have a long commute or drive frequently after midnight expect your rate to be a bit higher.

father teaching daughter to drive

7. Licensed drivers

List all licensed drivers living in your household, regardless of whether they drive your vehicle. Omitting a driver could result in a denied claim or a cancellation if the unlisted driver is involved in an accident. As soon as your child has a valid driver's license, add the teen to your policy.

In general, the two exceptions to the "list all licensed drivers in your household" rule are an adult child who lives with you but has his own vehicle and a parent who lives with you but has his or her own car.

Woman giving her driver's license to police officer

8. Driving record

Your driving record indicates how risky you are as a driver. A driving record packed with tickets or accidents is a red flag for any insurer.

Insurers will check your driving record when you apply for coverage, and again at renewal time. Expect violations to raise your rates for three to five years.

While it may be tempting to fudge the facts on your application, that is a bad idea. "If you give incorrect information on the quoting form, and the insurance company finds the error, it will recalculate your premium or may decide to rescind its policy offer," warns Gusner.

dented car fender

9. Claims history as well as prior insurance history

Accidents and tickets aren't the only things that will ding your insurance rates; all claims can potentially have an effect on your rates. While at-fault claims will result in a surcharge (higher rates) and comprehensive claims generally will not, the number of claims you make matters.

If you have made a number of claims, of any kind, on your policy in a short period of time, such as three claims in three years, expect your car insurance rate quotes to be higher. A large number of claims will peg you as a higher risk and raise your premiums for at least two to three years.

Proof of insurance verification, which shows that you had insurance coverage before applying for a new policy, is something every insurer will ask you to provide. In most states driving without car insurance is illegal so a lapse, or a number of lapses in your coverage, will be a concern.

traffic jam

10. Address

Where you live (and park your car) will have a direct impact on your insurance premium. Insurers probably know more about your neighborhood than you do. They study crime rates, neighborhood densities, the number of claims made annually and even the weather patterns to assess the risk you present.

Related: 12 secrets to auto insurance discounts

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