Car Insurance Rates 101
You may feel that a car insurance company sets its rates by throwing darts at a dartboard or consulting a Ouija board, but that’s not the case.
In fact, auto insurance companies rely on sound statistical data – compiled and tested over decades – to determine the fees it charges its individual customers. Insurance is all about risk, and few understand how to assess risk better that insurers.
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Auto Insurance Rates: How They’re Determined
A car insurance carrier considers many factors when evaluating risk, including:
- Vehicle type.
- Marital status.
- Accident history.
- Driving record.
- Annual mileage.
- Credit score.
These factors help insurers form a composite look at their customers, and evaluate which ones are most likely to cost them money through higher-than-average claims rates. Those deemed most likely to file a claim from an action they caused get tagged with higher insurance premiums.
Like it or not, that’s how the system works.
Who Gets the Cheapest Car Insurance Rates?
Generally speaking, insurers offer cheaper car insurance rates to those who:
- Are female.
- Are over 25 years old.
- Are married.
- Drive an older, less expensive car.
- Drive a car with a good safety record.
- Live in a rural area.
- Have no chargeable accidents.
- Have no moving violations.
- Meet insurance low mileage standards for your state.
- Have a high credit score.
Drivers with these characteristics have been shown to – on average – cause fewer accidents, report fewer claims, and cost insurers less money. That’s why those who fit into most of these categories pay a cheaper car insurance rate than other drivers.
However, insurers don’t weigh these factors equally. For instance, your driving record, age, and gender are more important than your marital status or credit score.
How to Lower Your Car Insurance Rate
When it comes to lowering your premiums, you have a lot of options.
Not all of the following actions may be feasible or possible for you, but they can have a positive influence on the price you’ll pay for insurance:
- Increase your deductibles.
- Lower your maximum coverage limits (be careful with this).
- Take a safe driving course.
- Maintain a high grade point average.
- Have the newest safety features in your car.
- Drive a vehicle with a good safety record.
- Improve your driving record.
- Have fewer chargeable accidents (i.e., accidents you caused).
- Move to a more rural location.
- Drive fewer miles.
- Raise your credit score.
Your insurance agent or insurance company may offer other ideas on how to lower your auto insurance rates.
Compare Car Insurance Quotes
Even though car insurance companies tend to think alike, the prices they charge for coverage can vary tremendously.
That’s why it’s smart to compare your insurance rates with several carriers. You can quickly do this online; in fact, some sites permit you to view from numerous providers at once.
Just keep in mind, though, the company with the most attractive rates may not always be the best option for you.
How men can beat gender bias in car insurance
(MoneyWatch) It’s great to be a girl — at least when it comes to buying auto insurance.
Men pay about $15,000 more for auto insurance over their lifetimes than women do, according to CoverHound.com, an insurance shopping service. But the differences can be even more dramatic, depending on age, location, and other variables.
For instance, an 18-year-old male living in Nevada would pay an average of $6,268 a year to insure his sedan if he had the misfortune to grow up there. That’s 51 percent higher than what his twin sister would pay (assuming they have the same grades and driving records), who would fork out just $4,152 to insure an identical car, according to a CoverHound analysis.
When both kids hit age 21, their insurance premiums would drop dramatically — to $2,696 a year for him and $1,824 for her. Still, that means our young man would be paying nearly the premium charged to his sister. The cost differential narrows to just 1 percent when both drivers reach middle age, or between 35 and 55. But it begins to widen again when they are older.
The cause of this disparity? Men tend to drive more aggressively and get into more accidents than young women. However, when the twins hit the “baby on board” years, guys mellow out — at least until they hit their midlife crisis years.
Oddly enough, the arc in gender-specific auto insurance rates isn’t a national phenomenon. If you live in Pennsylvania, the difference is auto insurance rates is likely to dog you your entire life. Men in the Keystone State will pay roughly one-quarter more for auto insurance than women at every age, according to CoverHound.
On the other hand, if you live in Washington, Illinois, or Texas, the gender differences not only narrow in middle age, they reverse, though modestly. Women pay 2-5 percent more for car insurance than men between age 35 and 50, according to the analysis. Possible explanation? Distracted soccer moms getting in fender-benders while weaving through crowded school parking lots.
Guys don’t just have to accept higher rates, however. While you can’t necessarily fight gender-based rating policies, you can significantly affect your own rates with these six smart auto insurance strategies:
Prove it: If you’re a safe driver, you may benefit from new programs that allow your insurer to monitor your every (driven) move. For instance, Progressive Insurance (PGR) has a program called “snapshot” that uses a computer key to see how much and how fast you’re driving, says Basil Enan, CEO and founder of CoverHound. For a young Nevada male that drives like his grandmother, that could be a significant money-saver.
You are what you drive (and sometimes that means broke): It’s also important to pay attention to what you’re driving. An 18-year-old male who drives a Chevy Camaro will pay a small fortune to insure that muscle car. But if he drove a used Dodge Caravan, he’d only feel emasculated until he realized that the drastically lower premiums allowed him the economic freedom to go out on dates.
Maintain good credit: Insurance “scores” — a version of a credit score — can also have a dramatic impact on the rates you pay, says CoverHound president Greg Isaacs. Although these scores cannot be used to set rates in California, in many other states they can create double-digit swings in how much you pay. The better your credit, the less you pay for insurance.
Location, location, location: Where your car is parked also matters. Even in California, where zip-code-based rating must take a backseat to driving record and experience, where you live is a big factor in determining your rates, says Isaacs. In fact, one CoverHound employee who moved from San Diego to San Francisco found that his auto insurance rates doubled. Nothing else — car, driving record, amount of driving — changed. Just his zip code. All things being equal, you’ll pay less when you live in a more rural area than when you’re in the city.
Qualify for discounts: If you never have tickets or accidents, you’ll usually qualify for a good driver discount. That makes it economical to opt for traffic school, instead of allowing marring your record with a speeding citation. But there are other discounts, too. If you’re a teacher, engineer, scientist, or doctor, many auto insurers will give you a lower “professional” rate. Make sure to ask about these discounts, because they’re not always well-advertised. If you have a car alarm or another anti-theft device, that also can get you a discount. If you’re still in school, getting all A and B grades will nab you a “good student” discount, which can cut your rate by 20 percent.
Shop regularly: It’s important to shop your policy every few years, particularly whenever you experience a life-changing event, such as when you marry, have a child, or send a kid to college, says Isaacs. Different insurers have vastly different pricing policies, which can make the cheapest insurer for a teen the most expensive insurer for an adult. Some will automatically raise rates every year; while others will provide “persistency” discounts to those who maintain coverage with the same carrier year-after-year.
Other policy differences can also dramatically affect rates. For instance, some insurers will demand that young college students who live away from their families remain on a policy to cover them when they’re home. Others, such as GEICO, will take the child off the parents’ policy when the student moves more than 100 miles away, covering the child as an “occasional driver” for free when they’re home on breaks. That difference alone can double a family’s cost of insurance.
How Age, Gender, and Marital Status Affect Your Car Insurance
It’s a well-accepted fact that car insurance premiums vary between certain demographics.
For instance, a 20-year-old male driver will most likely pay more for insurance than a man who’s 10 years older.
What may be shocking, however, is just how significant these premium swings can be — with age being just one of several factors.
For the second year in a row, a study commissioned by insuranceQuotes found that car insurance premiums, on average, can vary by more than 50 percent based on age, gender and marital status.
This article was originally published on insuranceQuotes.com.
According to Mike Barry, spokesman for the nonprofit Insurance Information Institute, insurers have long been interested in the way marriage, gender and age may affect insurance rates — and the general consensus has been resounding.
“Younger people cause more accidents than older people — unless they’re married — and men cause more accidents than women,” Barry says.
The Impact of Marriage on Car Insurance Rates
According to the study, marital status is almost as significant in car insurance pricing as age and gender. On average, a married 20-year-old pays 21 percent less than a single 20-year-old for the same policy.
The difference gets more pronounced when you divide it by gender. A single 20-year-old male will pay 25 percent more for auto insurance than his married counterpart.
And a single 20-year-old woman will pay 28 percent more than her married counterpart.
Premium differences between married and unmarried drivers drop off significantly as they get older. For instance, a single 25-year-old just pays 7 percent more for auto insurance than a married 25-year-old.
So why do insurers consider married people a lower risk when it comes to pricing auto insurance?
Eli Lehrer, president of the nonprofit research group The R Street Institute, says, “Marriage really does make people more careful and responsible. it isn’t at all surprising that this translates into better driving behavior.”
For example, a recent study by the Centers for Disease Control and Prevention (CDC) found that married men are more focused on taking care of their health than single men.
What’s more, Lehrer says married people are also a better business opportunity for an insurer, since they are more likely to own homes and “far, far, far more likely” to buy life insurance.
The Impact of Age on Car Insurance Rates
Without exception, young drivers pay more for car insurance than any other demographic — and there’s a very good reason why.
According to the CDC, crash rates per mile driven for 16- to 20-year-olds are four times higher than those of older drivers.
Bob Hunter, director of insurance at the Washington, D.C.-based Consumer Federation of America, a consumer advocacy organization, says younger drivers also file more car insurance claims than those with more experience behind the wheel, which is what accounts for significant differences in premium cost.
For example, according to the study, a 20-year-old driver pays 41 percent more than a 20-year-old driver for car insurance.
Also, premium costs don’t stop dropping at 25. According to the study, premiums begin to stabilize around 25 years old, but they fall by another 18 percent until they bottom out around age 60.
For instance, a 60-year-old single male driver is paying, on average, 59 percent less for auto insurance than his 20-year-old counterpart. The difference for women is 51 percent.
“This all comes back to (driver) experience,” Barry says.
However, don’t expect your insurance rates to drop at midnight on your 25th birthday.
Barry suggests paying close attention to your rates at renewal.
“Your rates are going to slowly go down every year you get older each time the policy is renewed,” Barry says. “When it’s renewal time and you’re 25, that’s when you’ll see the biggest drop.”
Age and Car Insurance Rates by State
When it comes to how age impacts insurance premiums, not all states follow the national average.
For instance, in Massachusetts, a 25-year-old married woman will pay a whopping 51 percent less than a 20-year-old married woman in that state.
Meanwhile, in Hawaii, a 25-year-old married woman will pay just 2 percent less than her 20-year-old counterpart.
The reason for this is how individual states regulate insurance.
“In some states, insurers are allowed to weigh age more heavily than in others,” Lehrer says.
For instance, according to the Hawaii Department of Commerce and Consumer Affairs’ Insurance Division, Hawaii is the only state that doesn’t allow insurance providers to consider age, gender or length of driving experience when determining premiums, which accounts for the negligible difference in premium costs.
The Impact of Gender on Car Insurance Rates
Here’s the bottom line: Women are statistically safer drivers, which means they’re also less likely to file a claim than men. Therefore, they generally pay less for car insurance.
According to the study, a single 20-year-old male driver will pay 21 percent more than his female counterpart. The good news for men is this difference begins to drastically level off as male drivers get older.
For instance, a single 25-year-old male driver will only pay an average of 4 percent more for auto insurance than his female counterpart.
What’s more, between the ages of 30 and 50, men actually pay slightly less for auto insurance than women. Experts aren’t entirely sure why this is the case, although Lehrer thinks it’s most likely an insignificant difference.
“The differences you find beyond about age 30 will amount to less than a dollar a month for most people based on gender,” Lehrer says.
Nonetheless, Hunter says, “At the end of the day, young men are less cautious, riskier, more distracted drivers.”
The study also accentuated the fact that three states — Hawaii, Massachusetts and North Carolina — prohibit gender from being used to set auto insurance rates.
Three other states — Michigan, Montana and Pennsylvania — apply the same rating factors to men and women, which is why there is no difference between their rates due to gender.
4 Ways to Reduce Your Car Insurance Rates
Whether you’re a man or woman, married or single, here are four tips for reducing your auto insurance premium.
1. Get a good-student discount.
Most insurers will offer a discount of up to 20 percent for young drivers who maintain at least a B average (a 3.0 GPA or better) in high school or college and take a recognized advanced driver training course in addition to driver’s ed.
2. Enroll in a pay-as-you-drive program.
Many major insurers — including Allstate, Progressive, State Farm and Liberty Mutual — offer discounts based on how well, how far and how often you drive. It’s a voluntary incentive and can save you as much as 25 percent on insurance.
3. Avoid making small claims.
Auto insurance is not meant for everyday repairs. Also, making just one claim worth $2,000 or more can kick up your rate by a national average of 41 percent, according to a January insuranceQuotes study.
If you file many small claims over the course of three or five years, your insurance company may not only raise your premium but could cancel your policy.
4. Shop and compare rates at least once a year.
According to Barry, car insurance is a buyer’s market, and shopping for new coverage could save you up to $500 per year.
Laura Adams is a personal finance expert, award-winning author, host of the top-rated Money Girl Podcast, and senior insurance analyst for insuranceQuotes, a Bankrate company. For more on auto, home, health, life, and business insurance, click here.
How Gender Affects Auto Insurance Rates
The Effect of Gender on Car Insurance Rates
Car insurance companies take a look at many factors to determine how much risk they’ll face when insuring you (meaning how likely they are to pay out a claim on your behalf). These include:
- Your car’s make, model, and year.
- Your driving record.
- Your credit history.
- Your age.
In addition to the above, a major factor that gets weighed when an auto insurance carrier determines your rates is your gender. This is given particular attention when you are a very young driver (see “How Age Influences Car Insurance Rates” below).
The Pricing Gap
Starting from the time they begin driving, women generally pay less than men do for car insurance. This pricing gap is influenced by:
- The types of cars typically chosen by men.
- The frequency of accidents among women versus men.
- Gender-based statistics on risky driving behavior.
- The average number of miles driven by women vs. men.
Why Women Pay Less for Car Insurance
Auto insurance companies calculate their risk when they determine your premium.
Calculating risk means using historical data to make an educated estimate of the likelihood of a covered person being in an accident.
The statistics tend to show that as a group, women are less likely to:
- Get into a car accident.
- Commit moving violations, like speeding and driving under the influence (DUI).
- Buy cars that are more costly to insure.
- Drive as many miles as the average male driver.
For the reasons above, car insurance for women is typically cheaper than it is for men.
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The Numbers Behind the Rates
While gender-based car insurance may seem biased, the following statistics provided by the Insurance Institute for Highway Safety (IIHS) help explain why gender is a rating factor for car insurance:
- 71% of all car accident-related deaths in 2012 were males.
- The number of drivers who died in a fatal car accident was 50% higher for men than women in 2008.
- Men are much more likely to have been under the influence of alcohol in a fatal crash. In 2012, 38% of fatally injured male drivers had BACs of over 0.08%, as compared to 20% of fatally injured female drivers.
- Seat belt use was observed in 88% of female front seat occupants, as compared to 84% of male front seat occupants.
- In 2012, 23% of male drivers who were involved in fatal accidents were speeding at the time of the accident, while 14% of women involved in fatal crashes were doing the same.
Since risk exposure is a large part of an insurance premium, women can generally expect to pay lower premiums than men.
NOTE: If you have a poor driving record with a high history of claims, however, you will still present a high risk to your insurer—regardless of your gender—and pay a high car insurance premium.
The Influence of Age in Car Insurance Premiums
Age can be a significant factor in the difference in insurance rates. In a lifetime, women pay less for car insurance than men do. The major difference, however, stems from the difference in risk between female and male drivers in their youth.
The car insurance premium for young women is at its highest when they are between 16 and 24 years old, but for young men they are much higher.
While auto insurance companies calculate that women in this age group are more likely to exercise unsafe driving habits and get into accidents than older women, they find that men in this same group are still much more likely to:
- Have accidents.
- Cause fatalities in accidents.
- Commit moving violations.
The difference in the risk assessment between men and women in this age group is so big that it account for most of the lifetime difference in insurance costs between men and women.
As drivers reach 25 years old, their risk goes down, as insurance companies see them as more mature, settled, and safe on the roads. At this point, rates tend to begin evening out among men and women. However, because men statistically exercise more aggressive or unsafe driving habits, they may still pay a somewhat higher rate than women.
Options for Male Drivers
If you’re a man, you may have to face that you’ll probably be paying a higher premium than your female counterpart. However, remember that you can always comparison-shop for the best possible car insurance rates.
Also remember that having a clean driving record and driving safely will go a long way toward getting cheap car insurance rates. If you have a great driving history, you’ll pay a lower premium than a female driver with a poor driving history.