How Car Insurance Companies Calculate Risk
Demographics Affect Risk Calculations Car insurance companies consider demographic characteristics as they calculate the risk associated with insuring you. Consider the following:
The other individuals on your policy also affect your risk and therefore your rates. Very young drivers, very old drivers, and those with poor driving records will likely raise your policy rates. To learn more about the demographic factors used to determine premiums, visit our Rating Factors section.
- Drivers under 25 years old and those over 65 years old are statistically more likely to be involved in accidents and typically pay higher rates.
- Men are also statistically more likely to get into accidents than women and pay higher premiums on average.
- Your marital status can be used to set your rates as well, with married individuals on average at lower risk for accidents than single adults.
- Students are generally considered more responsible, and so will usually get a discount for getting above a B average.
Your Credit-Based Insurance Score Some states allow car insurance companies to look at your credit-based insurance score when determining your premium or deciding whether to sell you a car insurance policy. Low credit scores have been correlated with risky driving behaviors and poor driving records. This means that if your credit-based insurance score is too low, you face the possibility of being deemed high risk of filing a claim. Your credit-based insurance score is similar to your credit score, but it does not include as many factors. In states where it is permitted, the majority of car insurance companies may look at the following to calculate your score:
- Payment history.
- Length of credit history.
- Whether you have recently applied for new lines of credit.
- What type of credit you have, e.g., loans, credit card, mortgage.
Occupation and Location
Occupation Your occupation also affects your car insurance rates, as certain occupations are correlated with higher numbers of accidents. High-risk professions include, but are not limited to:
Low-risk occupations include teachers and first responders. To learn more about which occupations are associated with higher and lower risk, visit our page on how occupation affects your car insurance rates.
- Business executives.
Location and Crime Rates Location plays heavily into your car insurance rates. Individuals who drive more are at higher risk for accidents, so car insurance companies are likely to request an estimate of your annual mileage when you are shopping around for auto insurance. Your risk of needing to file a claim also increases if:
- Your neighborhood has heavy traffic.
- Crime rates are high in your neighborhood.
- For example, if vandalism and theft are common in your location, your comprehensive car insurance coverage may cost more.
- You drive a vehicle that is a common target for theft.
Shopping for Cheap Car Insurance Rates Because car insurance companies given certain factors more or less weight, it is virtually impossible to know how the company calculates risk and, in turn, what your premium will be. This is why it"s so important to comparison shop for your auto insurance policy. Make sure to check the prices for at least 3 companies before settling on one, as you may be afforded significantly cheaper car insurance premiums from one company. You can compare prices quickly by getting free car insurance quotes online.
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