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How Vehicle Insurance Premiums are Calculated

As far as auto insurance is concerned, there is a wide array of factors considered when providers calculate their customers' premiums. Each provider has its own way of digesting this set of data, which is why in most cases you will not see two identical quotes even when you solicit prices from several different auto insurance companies. But even though no two companies may use the exact same formula for determining the rates we all pay for coverage, there are certain factors all providers will take into account in calculating the prices they propose to charge you for enlisting their services.

Personal Information Affecting Insurance Rates

Many of these factors have to do with you personally. Some of them are directly based on your characteristics as a driver or a consumer, but some are less directly related to either of these general categories. The most obvious personal factor taken into account is probably your driving record. Your historical performance as a driver holds a great deal of sway with auto insurance providers. If you have shown yourself to be a safe driver who avoids accidents and moving violations, and you have been able to do so for an extended period of time, you will likely see this reflected in your premiums. You might be eligible for certain safe driver discounts or preferred driver policy packages that would otherwise be unavailable to you.

On the other hand, if you have a long and storied history of at-fault accidents and speeding tickets or other citations, you might have a great deal of trouble finding an affordable auto policy from a reputable provider. You may even be forced into a non-standard automobile insurance policy because of your record; in the most extreme cases, getting into an assigned risk pool might even be necessary if local insurers are unwilling to take you on as a customer. There are clear and definitive consequences to both positive and negative driving records, so it is very important to do all you can to protect your good record-or to improve your driving history if you do have some of these scrapes and tickets in your recent past.

Other personal information beyond the reality of your driving record can also have a significant bearing on your ability to secure affordable auto insurance coverage. For example, something as seemingly innocuous as the home address where you reside is a factor providers take into account. Whether or not you have ever personally filed a claim against your coverage, if you live in an area where a lot of claims tend to be filed, or a high-traffic or high-theft area, you will likely pay a higher premium for your policy. In a very similar way, living in a low-crime area with lighter traffic patterns tends to improve your chances of getting into a policy for a lesser cost.

Premiums Affected by Vehicle Use

Likewise, the way you use your car can also work against you or in your favor. For example, a commuter who puts a lot of miles on his car driving into the city for work every day will tend to have to pay at least a little bit more than his neighbor who only drives her car a few miles here and there, all other factors being equal. High mileage equals high opportunity to get involved in an accident, and if your job takes you into the city, it is also likely to bring you into an area where your chances of falling victim to theft summarily increase. The purpose for which you use your car or truck will also tend to factor in. If you just use your car to transport you to and from work, it might cost you less than if it is, in fact, a work vehicle in which you move both employees or co-workers and equipment to and from the job each day. The hazards of the job and of the transportation of people and materials can have an effect on your policy pricing.

Predictably enough, the type of vehicle you own and drive will also weigh heavily on the rates you pay for auto insurance coverage. Some of the reasons for this are obvious, but others may be somewhat surprising. Of course some cars and trucks are less expensive to insure simply because they are worth less money and would cost less to replace; but other factors like a vehicle's rollover accident crash test rating also come into play, factors you may not even know about when you buy the vehicle or shop for insurance to protect it.

In keeping with this theme of differences in cost between types, one cannot overlook the importance of what type or types of auto coverage you select in helping to determine your premium. In most states, auto liability insurance is mandatory, but any additional coverage is optional for policy holders. If you chose to purchase only the minimum state-mandated level of auto liability coverage you could buy to get your car out on the road legally and get yourself a license plate, you would clearly pay a great deal less than you would to cover your vehicle with comprehensive, collision and uninsured/underinsured motorist coverage.

With this being said, understanding the factors that go into determining auto insurance pricing has to go hand in hand with an equal understanding of the importance of being protected, and of the reason we carry insurance in the first place. Aside from following the law in your state, the primary purpose of your auto policy is to go to work for you when any kind of claim situation arises.

Other Factors Driving Auto Premiums

These are only a handful of the many disparate variables driving car insurance rates. There are certainly others well worth noting even in a general discussion of the most common factors. The statistical demographic in which you are grouped by age, geographic location, or other category can affect your rates based on the tendencies of members of any such group to be involved in accidents or other claim situations. Your credit history can also have a profound affect on the price you pay for auto coverage. Taking good care of your credit score has its own benefits, clearly; but a positive credit profile also bears the added benefit of helping hold down your auto premium.

Market forces in your area, such as increased competition due to new entrants in the market, or government regulations on either coverage requirements or policy pricing cab greatly affect the price tag attached to your auto plan. And as all insurers advertise to no end, many different discounts are usually available. Qualifying for some of these discounts can do a lot to keep your costs down.

A whole host of factors go into the calculation of your auto insurance premiums. Some of them are directly related to your performance as a driver, while others are totally unrelated to such details. Being more aware of what goes into your auto policy can help you to get more out of it. Learn more about the factors affecting your vehicle premiums, and take more control of what you spend.

 

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