How Car Insurance Companies Calculate Risk

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Key takeaways...
  • First, you really need to educate yourself about car insurance and understand that car insurance premiums are calculated based on many risk factors
  • While it is true that every auto insurance company has a different formula for calculating risk there are many common factors, car make/model, age, which all car insurance companies use to determine your risk level
  • Every mistake you have made as a driver will likely be counted against you. From moving violations to your accident record, these types of incidents increase your risk of higher premiums

You hear advertisements about cheap car insurance and car insurance discounts almost every day, but how do you actually take advantage of these lower rates?

First, you really need to educate yourself about car insurance and understand that car insurance premiums are calculated based on many risk factors outside of just your smile.

In fact, car insurance companies have spent millions of dollars devising formulas to asses your risk as a driver well before you even walk into the office of a car insurance agent.

While it is true that every auto insurance company has a different formula for calculating risk, there are many common factors which all car insurance companies use to determine your risk level.

Many times these factors are well within your ability to control so before buying a new car or shopping around a new policy, let’s learn more about how these companies calculate risk.

Before we go any further, remember that contacting a car insurance company for a car insurance quote is always best BEFORE you buy a car, not when you are sitting at the car dealership signing the purchase agreement.

Use our FREE quote tool to compare auto insurance rates todayThere is no such thing as a reliable car insurance calculator.

Risk

Risk is the number one word used by all car insurance companies to calculate the cost of insuring you.

Whether its health insurance or car insurance, your risk factor is the ultimate determination of your auto insurance premiums and whether or not you will even be approved for an insurance policy.

Every mistake you have made as a driver will likely be counted against you. From moving violations to your accident record, these types of incidents increase your risk of higher premiums.

You can limit your exposure to higher insurance premiums by following posted speeding limits and following the rules of the road.

You also want to check whether or not a company has an accident or ticket forgiveness program as some companies allow a single violation not to affect your rate.

What if you had a car that was stolen? This type of claim deems you as very high risk as insurance companies view your ownership of a car as riskier than those who have not had cars stolen.

Of course, most people can not prevent auto theft; however, some can. Ever forget to lock your doors? Or always park in a dark location?

Many cars that get stolen often would never have been stolen should the vehicle owner had taken a few precautions so logically it makes sense for car insurance companies to categorize you as a higher risk should you have had a car stolen in the past.

Other factors which assist auto insurance companies in determining whether or not you should be assessed higher risk premiums include

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The Make and Model of your Car

Yes. The type of vehicle you drive plays a large role in the calculation of your car insurance premiums.

Luxury cars have a higher replacement value so have higher premiums, SUV’s may qualify for safety discounts but they are also prone to higher incidents of auto theft.

Sports cars are faster and statistically involved in more accidents than Minivans so again – the car you choose will provide a single baseline of cost before you (as the driver) are factored in.

How much your car will affect the cost, only your car insurance company can tell you so it’s important to contact an agent before you buy a new car.

Your Age

In the auto insurance world, age is equal to experience so regardless of your age, a car insurance company is not really discriminating by charging more based on your number of years behind the wheel.

This is not something you can fast forward but it is something you should always factor in when buying a new car.

Usually, after 25 you become what is referred to as a mature driver and the penalty for being a young driver is gone.

These are just some of the factors but maintaining a safe driving record and contacting a car insurance company to inquire about insurance coverage for a particular make and model BEFORE you buy a car can help you save money on car insurance premiums.

Learn more about common car insurance discounts available and compare rates with our free quote tool below now!

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