How are car insurance premiums calculated?

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Joel Ohman
Founder, CFP®

UPDATED: May 22, 2019

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Here's what you need to know...

  • Each insurance company uses different factors to determine individual rates
  • There are some general factors included by all insurance companies
  • Comparing quotes using an online rate comparison tool is an excellent way to get started finding the company that can provide you the best rate

When it comes to finding out how, exactly, car insurance premiums are calculated, consumers are in for a convoluted answer.

Various formulas — and intricate ones, at that — are used by different car insurance companies to come up with the car insurance premiums for each driver.

Getting car insurance quotes just got much simpler: just click here and type in your zip code!

Premium formulas include variables such as driver demographic, location, and make/model of the vehicle(s) that will be covered by the policy.

While each car insurance company assigns a different value to each variable, there are a few factors that are consistently likely to drive up premiums in a big way.

Here are some of these general factors:

  • Most men pay higher premiums than women do.
  • Young drivers pay more than middle-aged drivers. If a driver is male and young, his wallet is sure to take a hit.
  • Those who operate sports cars will also pay the price in premiums.
  • If a driver commutes to a large city known for a high accident rate, then that, too, will likely mean higher premiums.

Most car insurance companies will ask for the driver’s name, gender, age, make/model of the vehicle, and the Vehicle Identification Number (VIN) when coming up with an initial car insurance quote.

Every car insurance company attaches a different weight to each of these factors.

One car insurance provider may use a mathematical formula that assigns a higher level of risk to young drivers while a different car insurance company may reserve that higher level of risk for male drivers.

In order to find the company with the formula that translates to the most savings for your unique circumstances, you will need to get many quotes from different car insurance companies.

How to Get Car Insurance Premiums Calculated In Your Favor

Financial data analyzing. Close-up photo of a businesswoman's hand writing and counting on calculator in office. Selective focus

A new innovation in car insurance quotes has evolved in the form of the online quote comparison tool.

This technology gives users the opportunity to receive car insurance quotes from many different respectable and well-known companies just by answering a few questions on a website like this one.

With the unbiased quote tool, results are generated instantly, allowing users to compare several different quotes against each other in an organized way.

The 24/7 nature of the internet allows users to get online quote comparisons any hour of the day, any day of the week.

This technology is especially important for riskier drivers (like the young, sports car-driving men described above) who may find the odds stacked against them when certain statistics are used to calculate car their insurance premiums.

Doing a thorough search of MANY different insurers will yield more affordable car insurance premiums.

Free Car Insurance Comparison

Compare quotes from the top car insurance companies and save!

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Calculating Car Insurance Premiums for Men Vs. Women

Many differences between men and women exist, from the way they act, to the way they process things mentally, to their emotional chemistry.

The car insurance industry is responsible for many studies that attempt to justify higher car insurance premiums for men based on an increased level of risk.

Such studies have international scope. Science from South America to Asia confirms that males are behind the wheel more often than women during car accidents.

The rationale behind these findings asserts that psychology is responsible for the difference.

Males are prone to more aggressive behavior. They don’t follow the rules as often. Men, by their nature, present a higher level of risk to car insurers than women do.

Men, too, are more likely to drive cars that cost more to insure:

All these come with higher car insurance premiums attached to their price tags. Men are also more likely to put more miles on their vehicles. The more time drivers spend on the road, the riskier they are to insure.

How to Save on Car Insurance Premiums While Ensuring Adequate Coverage


Price is not the only important consideration when looking for car insurance. If you choose a provider only because of its cheaper premiums, you may find that you do not have enough coverage when you need it.

Consumers should look at the coverage details as well as the price when comparing car insurance quotes.

Going with a higher deductible will help keep your premiums down as well.

It is imperative to include any qualifying condition that may make you eligible for car insurance discounts in order to bring down your premiums. The following should make you eligible for discounts:

  • Safety mechanisms such as anti-lock brakes
  • Anti-theft devices
  • Alarm systems
  • Multiple vehicles insured with one company
  • Utilizing the Electronic Payment Transfer (EFT) method of payment

Compare Quotes Today for the Best Rates on Car Insurance Premiums

No matter how your car insurance rates are calculated, you will find the cheapest rates if you use an on-line quote comparison tool.

Compare car insurance quotes today by entering a zip code immediately!

Free Car Insurance Comparison

Compare quotes from the top car insurance companies and save!

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