Auto Insurance: How Your Rates Are Determined

shopping for insurance rates

Auto insurance rates are not flat rates handed out to everyone. There is a considerable variance between one driver and another. But what all goes into determining your auto insurance rates?

For exact specifics you’ll want to discuss this with your auto insurance provider, but in general, here are several elements you need to keep in mind, both when shopping for auto insurance and when shopping for a new car. 

Your Vehicle & Your Premium

One of the biggest influences on the cost of your auto insurance is the kind of vehicle you drive. Typically the more expensive the vehicle is the more costly the insurance is going to be. This is because if the vehicle is totaled the insurance company will need to pay out the value of the vehicle, and more expensive vehicles will tend to require a higher fee when replacing it. 

Additionally, replacement parts are important. How expensive are replacement parts and are these parts readily available? This matters to your auto insurance rates. For example, in some instances a used vehicle might be more expensive to insure than a new vehicle if the parts are difficult to come by. The parts may also need to be imported (if there isn’t a U.S. manufacturer for replacement parts and the items need to be shipped in from Japan or Germany, for example). 

While as the value of the vehicle declines your insurance costs will usually go down with it, but this isn’t always the case. 

Driving History & Your Auto Insurance

What is your personal driving history? Have you been in an accident before or been given a number of driving tickets? If so, your insurance costs will increase as you are considered a “higher risk” driver. If you’ve never been in an accident and have a clean driving record your insurance costs will decline. 

Likewise, how long have you been driving? New drivers are more expensive because they do not have the same kind of experience. Teen drivers are often the most expensive drivers to insure for the exact reason.

Where You Live Determines Your Rate

There are a number of factors here. First, there is the state. What state do you live in? The state laws will heavily influence the cost of your insurance. In fact, the state variable might actually have more of an impact on the cost of your insurance policy than anything else. A no fault state will usually cost more because even if you were not at fault for the accident, your insurance provider will need to pay for the damages. Some states, such as Michigan, have limitless funding for individuals who are seriously injured in an auto accident. This helps pay for medical expenses but it also makes the insurance extremely expensive

The location of a city will play a big role as well. Do you live in an area where there is higher crime rates? Higher crime rates means there’s a greater risk of your vehicle being broken into. If you live on the outskirts of town and have to drive further to work it can cause your rates to go up as well. Make sure to talk with your insurance provider to see how they determine what to charge you for your auto insurance policy based on where you live. 

These are some of the variables at play when it comes to identifying the potential cost of your auto insurance. Not every insurance provider is going to be the same, and no two states will offer the same kind of insurance. Due to this it is always a good idea to shop around and talk to different insurance companies to see how much they cost and how they cover you and your vehicle.