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Overpaying on car insurance?

Annual Car Insurance Cost

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image via Flickr by cafecredit

The variables that determine your vehicle insurance prices can be perplexing. Some of them, such as your age, are beyond your control. Others, like paying bills on time, driving carefully, and asking around for the best rates, are well within your control and can save you thousands of dollars per year. A rating factor is a customer’s unique trait that is used to compute vehicle insurance premiums. Read on to find out how insurance companies determine your premiums to arrive at annual car insurance cost.

Age

Age is a crucial rating component, particularly for young, inexperienced drivers. There is a significant cost difference between the highest insurance rates paid by teen drivers and the cheapest insurance premiums paid by 50-year-old drivers. The rationale is simple; teen drivers are high risk and potentially expensive consumers by insurance carriers.

Statistics show teen drivers drive more recklessly and have more incidents than motorists of any other age bracket. At 20, age becomes a less significant rating component, and at 25, it becomes even less so. When a motorist is in their mid-50s, auto insurance costs are at their lowest, before climbing for drivers aged 70 and up.

Credit Rating

Credit rating is a significant factor in determining annual car insurance cost. Drivers with bad credit register higher claims than those with good credit. When they make claims, they are typically more costly than claims filed by good-credit drivers. The annual gap in vehicle insurance prices between drivers with the lowest and greatest credit scores is over $1,500. For a six-month insurance, this equates to a $784 increase, or $130 per month. A credit rating of 300 to 579 shows a poor credit score, while any score above 700 is very good to excellent.

Driving History

This is an easy-to-understand rating factor. Auto insurance companies consider a driver’s previous performance to be a strong predictor of future performance. You are likely to inflate the cost of current and future insurance rates if you have a record of tickets or infractions.

Location

Location as a rating criterion applies on two levels: state and zip code. The state governments govern auto insurance using the laws of each state. For example, in Michigan, which is a no-fault state, all drivers require having Personal Injury Protection (PIP) coverage. Because the expenses of PIP and unlimited coverage are borne by insurers, car insurance becomes more expensive.

Insurance providers also calculate auto insurance at a more detailed level based on geography. To enable insurance companies to adapt to the external rating criteria tied with each area, carriers price car insurance by the ZIP code. Insurance premiums are higher in areas where there are more drivers. Flood or wildfire-prone areas, areas prone to vandalism or theft, and other threats to motorists have higher rates. Most times, drivers who live in rural locations pay lower vehicle insurance prices than those who live in cities.

History of Insurance Coverage

Insurance providers perceive a lack of continuous coverage as an evidence of greater risk, unless you are a completely new driver. If you had a driver’s license but no insurance, you might’ve been driving while uninsured, according to an insurance company’s estimation. This exposes you to high insurance premiums.

History of Claims

A prolonged complaints track is potentially a red flag when applying for coverage. Every insurance claim you file, including any claim against you, forms part of your claims history. If your insurance provider pays out a claim, your rate is likely to rise.

Level of Coverage

Your rates will go up if you need more protection. The cost variation between the minimum and maximum levels of insurance coverage can be over $1,000 per year. The reason for this is straightforward. If you have wider coverage, your insurance carrier is required to pay out to meet the larger coverage limit.

Type of Vehicle

Insurance prices for a brand new sports car will be higher than those for an older vehicle. If a car is more expensive to replace, the insurance provider will increase your monthly premium to compensate for these additional costs.

Eligible Discounts

Discounts on vehicle insurance vary by area and insurance provider, and many are based on your own rating factors. You may be eligible for a discount if you are a homeowner, pay your annual premium in advance, or have a spotless driving record. It’s essential to ask the type of discounts you are eligible for to shave off some dollars from your premiums.

Insurance Company

The insurance provider you choose is the most crucial component in influencing your car insurance costs. While there are other aspects that go into your driving profile, you may be paying too much for auto insurance solely because your current provider is charging more than other insurance providers.

How To Lower Your Annual Insurance Costs

If you don’t have any accidents, speeding tickets, or other citations on your record, your rates will be lower. When compared to a motorist with bad credit, having a strong credit profile can save you big bucks each year on auto insurance in most states.

The sticker price and monthly payments aren’t the only things to consider when purchasing a vehicle. Check insurance rates before you buy because certain models are substantially less expensive to cover than others. Choosing a higher deductible will lower your insurance premiums if you can afford to pay a little extra out of pocket after a claim. You might also save money by joining clubs, installing devices in your car, or setting up automated payments.

Final Word

It’s critical to shop around in order to get the best auto insurance prices. A myriad of factors shapes a car insurance quote, each of which is evaluated differently by each insurer. As a result, the lowest provider for your neighbor is probably not the lowest carrier for you. You won’t know the company offering the best rate for someone in your position unless you compare estimates. Simply said, the lower the risk of your rating criteria, the lower your annual car insurance cost.

FIXD Research Team

At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.

We’re here to help you simplify car care and save, so this post may contain affiliate links to help you do just that. If you click on a link and take action, we may earn a commission. However, the analysis and opinions expressed are our own.

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About the Author

FIXD Research Team

FIXD Research Team

At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.

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