Variables that dictate auto insurance premium rates


Have you ever wondered why someone who drives the same car as you and has been insured by the same auto insurance firm pays a lesser premium than you? This is a pretty common situation and there are several factors that come into play here. Calculation of auto insurance premium is based on scientific research, social statistics and a host of other related points. The crux of the issue is that the calculations are based on risk factors. Risk factors are never constant- neither are they very small in number. These issues are related to the vehicle you drive, the place where you live and most importantly to you as a person- what risk you represent to the auto insurance firm. This is a run through of important factors that influence auto insurance rates.

  • Age
    The driver’s age plays an important in determining rate of insurance. The basic premise being that drivers under the age of 25 tend to be more reckless and have higher accident rates than older drivers. This fact is deduced based on statistical averages showing the profiles and ages of accident victims. Some states also have higher premiums if the driver is very elderly.
  • Car issues
    The purpose of the car (commuting/delivering/company vehicle etc), the cost of the car (cheap models cost less to insure than state of the art European makes- spare parts are expensive), and the distance that is driven on an average all make part of the rate calculation.
  • Geographic factors
    The place where the applicant lives is another issue. If it is a theft ridden locality, premiums will be higher. The terrain: Hilly, rocky or smooth make a variable. The traffic demographics play its part. Less traffic will mean less likelihood of having an accident but congestion will mean more chances of getting hit and so premium will be higher.
  • Applicant’s profile
    This is by far the most crucial factor in determining insurance rates. The gender (women are considered safer drivers than men), the occupation or the job profile of the applicant (a teacher will have less driving to do than a milk van driver), marital status (a married person pays less than a single one), education levels (higher education levels lead to reduced premiums): all are recorded before calculating the premium rates of auto insurance.
  • Quality of driving record
    A clean record improves possibility of a lower premium. It’s very simple. A record smattered with speeding tickets and fines for drunken driving shows that the driver is likely to have further problems and accordingly the rates will be hiked. A good record on the other hand indicates that the driver is trustworthy and observant of traffic rules and regulations.
  • Miscellaneous factors
    Theft protection devices on the car reduce premiums as so multiple drivers of the car (the risk is then spread out).

Broadly speaking these are the factors on which auto insurance depends. Some are completely outside the applicant’s control (like age and gender) while the others are.