How are Auto Insurance Rates Calculated and How to Get Low Quotes

The formula used to determine your car insurance rates is more complex than the Da Vinci Code. Super computers are needed to establish your risk profile, and then compare it with all historical records in the insurance company's database. No human being could possibly comprehend the insurance rating system in its entirety, but a solid understanding of the basics is all that's really necessary to begin cracking the code.

Components of the Insurance Code

Since the laws that regulate insurance are set at the state level, the state in which you live is the most important factor in determining the cost of car insurance. Hawaii, for example, has liberal liability laws and a plethora of uninsured drivers. North Dakota has more conservative laws on the books, fewer uninsured drivers, and fewer drivers period - the less cars on the road, the less chance of an accident. As a result of these factors, the average insurance premiums paid by Hawaiian drivers are nearly three times higher than those paid by North Dakotans. Beyond your state of residence, the primary factors the affect your insurance rates are personal and demographic in nature - your age, gender, and marital status. Secondary factors include your driving record, your credit history, where you live, and the make and model of your car.

Dissecting the Code - Age, Gender, Marital Status

The insurance company's objective is to determine how much risk you will pose to them if they insure you. Through the data they've collected over the years, they know that 16 to 24-year-olds are in a disproportionate number of accidents. People 25 to 49 are in fewer, and people 50 to 64 are in the fewest of all. But starting at age 65, people begin getting in more accidents. By the time they hit 75, they are more commonly in accidents than even teenagers! By and large, women are in fewer accidents than men. Gender is most important in the cases of people under 25, with young males being in far more accidents than young females. This risk can be partially offset, surprisingly, by marriage. Married men ages 18 to 24 are in far fewer accidents than their single peers.

Dissecting the Code - Secondary Factors

Driving record is the most important of the secondary factors. The insurance companies believe that if you're in one accident, there is a great likelihood you'll be in a second. If you're in a second accident, there's an even greater likelihood that you'll be in a third. And if you're in a third, fourth, or fifth accident in a short period of time, your insurance rates are going to go through the roof. Credit history is one of the most controversial criteria used to determine rates, but the insurance companies have historical data on their side - people with poor credit cost more to insure. Where you live is considered an important factor since it indicates how much traffic you'll encounter on a daily basis, and also the frequency of car theft in your area. Finally, the make and model of your car is used to see how often similar cars get into accidents, how much damage they sustain, and how much they cost to repair - all important factors in assessing the risk you pose to the insurance company.

Adding It All Up - Compiling the Code

With all of this taken into account, the insurance company assigns you a "rating factor" by which they multiply the "base rate" for each type of coverage. For example, a given insurance package may be priced at $400 per year for someone with a "preferred profile," but if your rating factor is 1.5, you'll be charged $600 ($400 X 1.5). However, it's important to note that while all insurance companies use the same basic criteria in determining rates, some weigh the various factors differently. This is why it is so important to comparison shop for your car insurance quotes. One company may assign you a rating factor of 1.5, while another may designate you preferred. The only way to get the best coverage for the least money is to shop around. Luckily, internet sites like this one make it easy.