Factors that Affect Your Car Insurance Premium

The common factors that affect car insurance rates include driver history, type of car, location, and vehicle usage. Controlling the factors that affect car insurance may help you reduce your rates.

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jan 17, 2021

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Here's what you need to know...

  • If you live in a high rate crime area, your car insurance rates will be higher than if you live in a low crime area
  • You may be eligible for lower car insurance premiums if do not drive many miles in a year
  • Driving record is a big factor in determining your rates

There are many different factors that determine someone’s car insurance rates. One very important factor is how the policyholder uses their car.

Use the car insurance rates comparison tool above by entering your ZIP code now!

Understanding how car insurance rates are determined is very important to choosing the best car insurance provider.

Once someone fully understands how their car insurance rate is determined they can choose the best provider by getting quotes and researching companies at websites like A.M. Best Company.

What are the most common factors that determine car insurance rates?

The most common factors that are taken into account when deciding on a car insurance rate are:

  • The type of car
  • How the car is used
  • Where the car is used
  • Personal history of the driver
  • The location of the garage the car is kept in regularly
  • How often the car is driven long distances

While the size and prevalence of the car insurance provider also plays a part in their car insurance rates, the driver and vehicle are much more important.

So even if the policyholder chooses a local insurance agency instead of a national company, they can still get a very low car insurance rate if they meet the right criteria.

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How does location affect car insurance rates?

Road in Bruce canyon national park in winter with snow and fir trees, USA

The type of area a car is driven and parked in greatly affects the car’s insurance rate. A car that is kept or driven in an urban area tends to have a much higher car insurance rate than one that spends more time in a rural area.

There are several factors involved in the reasoning behind this:

  • Accident risk – A car is more likely to be in an accident if it is driven in an urban area because there are more people on the roads; statistically, an accident is more likely to happen.
  • Vandalism – This happens at a higher rate in a city than in the country.
  • Theft – More cars are stolen in urban areas than rural ones, so the chances of a policyholder having to file this type of claim are also greatly increased.

A person that drives and lives in a rural area is much less likely to be in an accident since there are fewer people in the area. Even though this is statistically the case, some rural areas do carry higher car insurance rates because of the roads themselves.

An example of this is if there is only a two-lane rural highway that the majority of people in that area use to commute.

Even though there are technically fewer people on the road, the actual driving conditions increase the risk of an accident and therefore, increase the risk of an insurance claim.

How does the way the car is used affect car insurance rates?

The way the car is used on a daily basis plays a very large role in the car insurance rate. A car that is not driven very often or for very long distances tends to have a much lower car insurance rate.

So a person that lives in a small town with a shorter daily commute will have lower rates than a driver in a large city that has to drive thirty or more miles on any given day.

Some people do not drive very often. In cities like New York, most people prefer to walk or use public transportation because it’s easier.

A city like Los Angeles, on the other hand, requires its residents to drive a lot because the city is so spread out and public transportation is not always the best choice.

A person might only use their car to commute to work and very rarely use it for anything else. In these instances, that person will have a much lower car insurance premium.

How does the history of the driver affect car insurance rates?

Driving car on empty streets

When a car insurance provider is determining someone’s car insurance cost they look very closely at the driver and their lifestyle. An older married driver will have a much lower rate than a young single driver.

The reason for this is that the younger the driver, the less driving experience they have, and people with families, houses, and established careers are statistcally much more cautious.

The policyholder’s driving history is also taken into account. If they have a long history of tickets or car accidents they are a much greater risk to insure than someone with a clean record.

Type in your ZIP below to compare car insurance rates for your area today!

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