How Is The Price Of My Car Insurance Premium Determined?

How Is The Price Of My Car Insurance Premium Determined?

How Is The Price Of My Car Insurance Premium Determined?

One of the things you need to know when you get ready to compare auto insurance quotes is how your insurance premium is calculated. You will not know if your auto insurance comparison is accurate until you know what you are comparing.

Your insurance premium consists of several major factors and many minor factors, which will be more individualized. If you keep your car in a rural area garage with a security system, your location will have different rates than someone who parks on the street in a busy city.

The technical side of rate calculation is based on formula that the insurance company has put into place after years of study and comparison. The insurance company employs people whose sole job is to crunch numbers and obtain rates that consistent with risks and data in your area. The insurance company’s underwriting team employs these people. They are the statisticians and they understand risks.

That being said, your rates are determined based on the formula in conjunction with your state rules and regulations. Your state will set the cap on what the insurance company can charge, while the state makes sure that the insurance company can afford to do business in your area.

The things that make up the different components of your insurance premium are as follows:


The younger you are, the more you will pay towards your car insurance premium.

The older you are, the more you will pay towards your car insurance premium.

If you are in the middle, you will get the best rates. Those who are in the late 30s to upper 50s enjoy the best rates for their insurance. Likewise, if they are female, they enjoy an even lower car insurance premium.

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The insurance industry has determined that middle-aged women are the least risk and will be less likely to cause the insurance company to pay out a claim.

Vehicle make and model

Driving a newer and reliable car will cost you less than if you are driving an expensive sports car.

The insurance company does not feel that a red Mustang is as good a risk for them than champagne Toyota Corolla. Theft has caused the rates to go up on many different cars that would normally be considered reliable and have a lower premium.

Honda Accord, which is an extremely reliable and safe car, was the target for theft rings. According to the National Insurance Crime Bureau, in 2007, the Accord was in sixth, seventh, eighth, ninth and tenth spot for the most stolen vehicles. Toyota Camry held first, second, third and fourth spots that year. The F-150 2-wheel drive truck from Ford was in fifth spot.


Where you garage your car will make a difference in your rates.

City dwellers pay more than rural drivers do. The city has higher theft rates and a higher rate of accidents. These are factored into the risk.

Driving history

If you have a good driving history with no tickets or accidents, you will pay less on your premium than someone who has tickets and accidents.

You are a better risk to the insurance company and they reward you with a lower premium.

Credit history

The same is true with your credit history. If you have no judgments, liens, collections or slow pays on your credit history, you are a better risk to the insurance company.

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Someone with a bankruptcy will pay higher insurance rates than you will if your credit scores are high.


The amount of miles you drive each day will determine how long you are on the road and subject to risk.


A lower deductible will result in a higher premium.

When you do your auto insurance comparison, make sure that you are comparing the same coverages. You should compare auto insurance quotes often.