If you’re looking at car insurance policies and comparing quotes, you want to know exactly how those rates are determined. You might have an idea, but how is car insurance calculated precisely? While each car insurance provider may have different criteria, many of the contributing factors remain the same. Ultimately, car insurance premiums are calculated by looking at various data points that assess overall risk.If you’ve wondered how car insurance premiums are calculated, read on to learn the various data points impacting your rates.
How is car insurance calculated?
Car insurance companies look at certain factors when setting your rates to assess overall risk.
While each insurer has its proprietary formula, many insurance companies tend to use the same information to calculate your car insurance premiums:
- Your age
- Your gender (in some states)
- Your education (in some states)
- Your job (in some states)
- Your marital status (in some states)
- What type of car you drive
- How many miles you drive
- The type of car insurance coverage you have
- Your coverage limits
- Where you live
- Your credit score (in some states)
- Your driving record
- Your insurance record
Your age can play a significant role in determining your car insurance rates. Studies have shown that young drivers, especially teenagers, who might have less experience on the road, are more likely to get into car accidents than older drivers. In fact, CDC data illustrates this higher risk, stating teens ages 16 to 19 are three times more likely to be in a fatal car crash than drivers 20 and older.
So if you’re just starting to drive, your rates might be higher due to the increased risk.
The best thing you can do is prove you’re a safe driver by following the rules of the road, so you don’t get traffic tickets or get into accidents. Over time, insurance companies will reward your safe driving with lower prices or discounts.
Gender might also play a role in determining your car insurance rates. Men are more than twice as likely to be killed in a car accident than women, according to the nonprofit Insurance Institute for Highway Safety.
In 2019, the most recent year for which data is available, 11,896 male drivers lost their lives in crashes, compared to 4,868 female drivers. This might be because men tend to drive more often and may be more willing to take risks on the road.
So you might be surprised to learn that some auto insurance industry studies show women, including those older than 25, might pay a little more than men for car insurance.
Because of this, places like California, Hawaii, Massachusetts, Montana, Pennsylvania, North Carolina, and Michigan have limited car insurance companies from considering gender when calculating a driver’s rates. But in many other states, insurance companies can still consider gender as a factor when determining car insurance premiums.
Some car insurance companies also look at your level of education when determining car insurance rates.
While some states have banned this practice, in other states, drivers with a higher level of education, such as those with a college degree, could save money on car insurance compared to those who only have a high school diploma. Some insurers might also provide a discount for college students.
Auto insurance providers might also look at the type of job you have. While this practice is not allowed in some states, your job could affect your insurance rates in other places.
Some companies and professional groups work with insurers to provide an auto insurance discount to their employees. On the other hand, some professions might travel a lot more than other drivers, for example, and might be considered riskier and pay higher rates.
On the surface, your marital status may seem like it has little to do with your driving risk. But typically, car insurance providers have found married drivers file fewer claims.
According to The Zebra, married drivers typically file fewer claims than single, widowed, or divorced drivers, which can result in lower car insurance premiums.
Car insurance companies also look at the type of car you drive. If you trade in an older vehicle for a fancy sports car, it stands to reason you might pay more for insurance because your new car would cost more to replace.
The more expensive it is to replace your vehicle, the greater the risk and cost for your insurance company. So they might charge a higher premium to make up for the pricey repairs.
On top of that, if you get a car such as an SUV that can do damage to other vehicles in the event of an accident or buy a car that is highly sought after by car thieves, your car insurance premiums may be higher.
Every time you get behind the wheel and drive, you face some level of risk. It makes sense then that the more miles you drive means there is a higher level of risk.
Types of car insurance coverage
The type of car insurance coverage you’re purchasing will also invariably impact your rate. For example, getting liability only may be more affordable than comprehensive coverage but will also cover less in the event of an incident. The different types of car insurance coverage can include:
- Comprehensive insurance
- Liability insurance
- Collision insurance
- Uninsured and Underinsured insurance
- Personal injury protection (PIP) insurance
- Medical payments insurance
- Roadside Assistance insurance
- Rental car insurance
Your coverage limits
Your car insurance coverage will have certain coverage limits that can impact your rate. These coverage limits are typically related to the type of policy you purchase. So liability only can offer more affordable car insurance premiums, it also means having lower coverage limits.
Higher coverage limits are costlier, however; you get more covered in case of an accident or other type of incident.
Where you live can have a significant impact on your car insurance premiums. That’s because some places are more dangerous for car owners than others.
No matter how safe of a driver you are, sometimes accidents caused by other drivers are unavoidable. And even if you don’t get into an accident, your car could get stolen or affected by the weather.
So living in sunny Los Angeles might have a different impact on your rate than living in a place like Chicago, where winters are known to be brutal. However, population density is also considered as well.
So if you live in a big city like Philadelphia with more cars on the road, where accidents and vehicle thefts might be more common, you might pay more for insurance than if you lived in a rural town.
Some car insurance companies might also ask you where you park your vehicle at night and whether it’s parked somewhere covered. It could be riskier to park your car on the street than inside your home’s garage, and this additional risk could increase your car insurance rate.
If you’re a low-mileage driver, you may be able to reduce your car insurance premium with pay-per-mile insurance if you live in certain areas in California, Arizona, Oregon, Washington, New Jersey, Virginia, Illinois, or Pennsylvania.
Building an excellent credit score is not only a good way to qualify for an auto loan with low interest rates, but it could also save you money on car insurance.
In some states, car insurance companies might use your credit score to determine how responsible you are. They figure if you’re responsible with your finances, you’re more likely to be a responsible driver or less likely to file a claim.
As you might imagine, car insurance companies are especially concerned with your driving record. While things like your age, gender, and where you live might help car insurance companies gauge your risk, your driving record provides the most accurate representation of the type of driver you are.
If you have a pile of speeding tickets or were at fault in a car accident, your car insurance rates could skyrocket. But over time, a clean driving record can go a long way toward helping you save money on car insurance.
Similar to your credit score, car insurance companies track your auto insurance history.
They look at previous claims you’ve filed and whether you maintained continuous insurance coverage.
If you filed a claim after an accident or totaling your car, that could factor into your rates. Likewise, in many states, if you sell your car, stop driving and skip insurance coverage for a few years, it might be more expensive when you start back up.
How does Metromile calculate my car insurance rates?
At Metromile, we care more about the way you drive. Our pay-per-mile car insurance policies focus on your driving record, insurance claims history, the type of vehicle you drive, the amount of coverage you get, and theft and accident rates in the neighborhood where you live.
In some states, we might also consider your age, driving experience, education, profession, and whether you’ve had continuous insurance coverage.
But what sets Metromile apart is our ability to look at your driving patterns in some states. The Pulse device we send you to count your miles can also gauge how safely you drive over time and give us an understanding of the quality of each mile you drive.
All of this information helps us get a better picture of you as a driver to personalize your insurance rates, and hopefully, offer you a lower price.
How can I save money on car insurance?
Now that you know how car insurance is calculated, let’s take a look at how you could save money on car insurance.
Here are a few ideas to get you started:
- Shop around: Compare prices from different car insurance companies to make sure you’re getting the best price. Auto insurance prices can change over time, so you’ll want to stay up to date on the latest rates.
- Take a closer look at your insurance coverage: You might be able to adjust your coverage levels or deductibles to save money on your monthly premiums if your lifestyle has changed. But it’s crucial to weigh the pros and cons before making any changes to your policy.
- Drive safely: Metromile offers discounts to good drivers who are accident-free and mature drivers, as well as those who install safety equipment in their cars in select states.
The bottom line
Figuring out how to calculate car insurance is a complex and nuanced process for car insurance providers. As you can see, there are a wide range of factors that go into your rate so if you’ve ever been curious how are car insurance premiums calculated, now you know it’s not just one thing like your driving history. One way to score lower car insurance rates is to drive less. As a low-mileage driver, you could pay less for insurance with pay-per-mile coverage. You pay for things like gas by the gallon. So why not pay for car insurance based on the miles you drive? Using Metromile, you can. Check out your free quote.