What Factors Affect Insurance Rates?
In today’s world, insurance rates are based on hundreds of different factors. The reality is that insurance carriers have now become big-data companies, compiling an incredible amount of information to establish their insurance rates.
Common factors that affect insurance rates:
- Driver’s age
- Vehicle’s worth
- Driving records
- Garaging address of the vehicle
- Driver’s education accomplishments
- Credit score
Other not-so-common things come into play when insurance carriers create their rating structures for premiums, such as the likelihood that a particular year, make, and model of vehicle will get into an accident in a specific state.
Insurance companies are always pressing into the data so they can correctly charge a premium for their policies while balancing competitiveness and profitability.
Below are the most common factors that affect insurance rates and how to maximize your ability to save money.
Year, Make & Model of the Vehicle
When asking an insurance agent or agency for a quote, they will eventually ask for the VIN of the vehicle you would like to get insured. This unique 17-digit number gives the insurance carrier all of the vehicle’s specifications, including the trim package and color.
As you’ve learned from the data above, every vehicle has its unique rating structure. Some cars are more affordable than others, and the rates are based on many different things.
When searching for an affordable used vehicle that is cheap to insure, there are two very impactful variables to consider:
1. The MSRP or Kelly Blue Book price of the vehicle
2. The general safety rating. Find safety ratings at the Insurance Institute for Highway Safety’s Top Safety Picks.
Credit Score
Depending upon the state, insurance carriers can pull credit scores from the potential “insureds” or drivers on the policy. Insurance companies partially base their rates on the credit score of whoever owns the vehicles.
Ever wonder why some insurance agents ask for your social security? They are doing a “soft tap” to see credit scores. Sometimes they don’t even require social security to pull the data; they only need their name, date of birth, and address.
To find the best pricing for insurance, have the person with the best credit score (usually the husband or wife) call the insurance carrier to get a quote. The agent will naturally pull their credit score as opposed to the spouses, optimizing your ability to save money on insurance!
Age of Drivers
One primary factor affecting insurance rates is age. The rule of thumb is that younger drivers are more expensive to insure when compared to older drivers.
Younger drivers are more prone to accidents because of their inexperience. According to Yale University News, younger drivers’ most common causes of accidents are distracted driving, speeding, drinking alcohol, and driving.
New drivers can decrease insurance premiums by having a parent or guardian co-sign for the vehicle. If there’s a co-signer, insurance agents can partially base the rates upon the older person, decreasing the insurance price.
How to Compare Insurance Rates for Used Cars
I always recommend getting quotes from multiple carriers when comparing insurance rates. In practice, it’s pretty simple to accomplish, too! I know most people may start with an online quote but, stick with me here:
1. Create a List
Get a list together of a few used cars you may want to purchase. To receive more accurate insurance quotes, have the VINs for each vehicle you are considering purchasing.
2. Call an Independent Insurance Agent
Independent agents offer a wide variety of insurance carriers, saving you time and money. To find an independent insurance agent near you, simply Google: “independent insurance agents near me.”
3. Call “Captive” Insurance Agents
Captive insurance agents are those who represent one company. All State, State Farm, and Geico are captive agencies. These are reputable brands that are often a great option for saving money.
4. Get Online Quotes
There are many online quoting portals for car insurance rates. The advantage of using them is their ability to give instantaneous pricing. The great part about getting online quotes last is that it saves you time. By the time the insurance agents you called initially have their quotes together, you’ll be able to compare them with your online quotes.
After going through these simple steps, you’ll be able to compare rates from multiple insurance companies and make a final decision quickly without wondering if you could have paid less.
Additional Tips to Reduce Auto Insurance Premiums
There are many ways to reduce your auto insurance premium that you may have never thought of before.
Here’s a quick list to consider when shopping for insurance:
1. Future Effective Dates
If you request that your policy start at least ten days into the future, you’ll likely receive a sizable discount. When I ran my insurance agency, I encouraged my clients to start new policies at least ten days into the future. These discounts can exceed 5% off the entire car insurance premium.
2. Bundling Insurance
An easy way to save money on car insurance is to bundle different policies with the same carrier. If you rent an apartment, ask the car insurance company if they can bundle it together. The same goes for other insurance products, such as life insurance, home insurance, umbrella insurance, and disability insurance.
3. Periodically Shop Rates
Shopping for lower insurance rates is important, but you can overdo it too! It’s wise to see what other insurance companies offer from time to time (I recommend every two years). If you change carriers every six months or yearly, insurance carriers may view this disfavorably for future quotes.
Jesse Cunningham V is a professional writer and licensed insurance agent. He has worked in the insurance industry in different capacities, starting as a customer service representative and working his way up to an independent agency owner. He is licensed in the states of Maryland and Pennsylvania for Property, Casualty, Life, and Health products. Jesse has worked with many national carriers, including Nationwide, State Farm, Travelers, and Liberty Mutual, and specializes in car and home insurance and health, life, accidental death, and disability insurance. He writes for multiple publications including FIXD and Bauple.com. All articles by Jesse are opinion-based. Speak with your licensed insurance agent about the particulars of your insurance before making any decisions.
