How Do Car Insurance Companies Determine Rates?

If you are one of the many million of drivers in the United States, you are required by law to have car insurance. And whether you’ve shopped for several policies throughout the years or are a new driver, you may have a lot of questions about how your car insurance rate is determined. Find out more about the factors determining the rates. Also, get car insurance quotes online free from our website.

The first thing you should know is that insurance companies generally look at:

  • Where you live and drive
  • What type of vehicle you drive
  • How you drive, including your history of accidents, claims and traffic violations
  • And who you are — general demographic and personal info

For each category, insurance companies ask a number of questions, which are relevant when determining risk profile and associated cost. A rating factor is a characteristic about you and your behaviors or a detail about your car which insurance companies use to assess the likelihood of you filing a claim. Insurance companies enter your set of rating factors into their unique rating algorithms to determine how much you will pay for insurance coverage.

Location matters down to the zip code. It’s about statistics and insurance companies want to know about the zip code in which you primarily park your vehicle. Your zip code gives insurance companies an idea of the crime rates (especially car thefts), weather trends, population density, and other stats which indicate likelihood of you filing a claim. They also look for local car insurance legislation.

Cars of higher value will cost more to repair or replace, and are a thus a higher and more costly risk to your insurance company. Luxury cars are the most expensive vehicle types to insure, followed by “green” cars (hybrids, electric, etc.), trucks, sedans, SUVs, and vans.

Driving habits, vehicle purpose, annual mileage and claim history are also relevant factors.

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