Are you wondering what goes into creating a premium for an auto insurance policy? While you may think it’s a pretty simple process, it’s actually quite complex. A variety of components go into play to determine what a person’s specific costs should be.
If you are looking for a new auto insurance policy, it’s always good to open the conversation up with your agent. Talk about what is contributing to your costs. Are you wondering why your neighbor’s policy is less than yours? Perhaps you want to know why one insurer offers a lower rate than others. It all depends on risk.
Assigning Risk & The Uncontrollable Factors
When an agent examines the amount of risk a vehicle and driver present to the company, they look at both factors you can control as well as those you cannot. Those uncontrollable factors are things that apply to everyone. Other aspects, such as your driving history, are things you can control in terms of avoiding accidents.
Let’s talk about the most common factors that play a role in your costs outside of our ability to change.
Location
An area’s safety is a big factor in determining the cost. Sure, you control where you live, but not necessarily what risks the region presents. For example, if you live in a larger city with faster highways and lots of traffic, you know it is more likely you’ll be involved in an accident than if you lived in a small town in a rural area. More cars nearly always mean more risk.
Some communities are safer because there’s less crime, too. Theft and vandalism are common auto insurance claims. In areas where these claims are lower, you’ll spend less on auto insurance.
The Vehicle
Vehicles can be at the heart of what you pay for auto insurance. Imagine, for a moment, buying a brand-new truck off the lot with all of the features you can imagine. This vehicle is going to cost more to repair and replace after an accident than a smaller vehicle that’s used.
Another factor is a rarity. Some of our drivers own expensive, classic cars. These are hard to repair or replace because of just how rare they are. Sports cars are also at the top of that list. If you own these, expect to pay more than someone else.
Demographics
A young teen with little experience behind the wheel driving an expensive car raises the risk of an accident occurring. Married couples tend to be involved in less moving violations, too. While age, marital status, and gender matter to insurers, it is purely based on how many other people that fit your demographics have been involved in accidents or filed claims.
Driving Habits
To some extent, you control your driving habits. You don’t have to travel every weekend. However, if you drive a long distance for work, that’s less controllable. A senior who isn’t driving much is going to cost less to insure as well.
Your Past
You can’t change your past and its impact on your auto insurance. In fact, your past is already negatively impacting your auto insurance costs if you’ve filed numerous claims. You can change your future though by being a safe driver. When it comes to comparing your coverage options, be sure to remember that what you did previously is going to impact your future costs. Still, past driving history and claim history can’t be improved upon right now. It is likely to impact what you pay for auto insurance at least for a few years until high risks come off your history.
