Jessica Sautter is a Content Writer for CarInsuranceCompanies.com with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Oct 18, 2020

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Key takeaways...

  • Each state oversees the insurance requirements, rates, and laws affecting insurance within its own borders
  • Insurance companies do serve a valuable role in many industries in that they allow individuals to extend their own risks for business’ sake
  • Different factors such as age, ZIP code, marital status and type of coverage all determine your insurance rates

The average cost of car insurance in 2012, according to the National Association of Insurance Commissioners, was $815 annually.

Averages are still being figured for 2013 and 2014. These averages take time because there are so many variables affecting the cost of automobile insurance.

To understand the variables, it is necessary to understand a great deal about the American method of pricing and selling insurance.

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Table of Contents

General Insurance Information

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Each state oversees the insurance requirements, rates, and laws affecting insurance within its own borders. This means that the state must set up an insurance department, establish laws, and enforce laws that apply in the state.

Along with laws come all the administrative tasks of enforcing laws, licensing insurance agencies and companies, as well as hiring individuals to perform these tasks.

It might surprise the average person to realize how many accountants and statisticians are hired to work in various aspects of insurance.

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Goals of Automobile Insurance Companies

Insurance companies, as with all other companies, are aiming to make money on their investments.

They plan to do this by:

  • Balancing risks by charging drivers with more expensive claims rates that are higher than drivers with less expensive claims.
  • Earning enough money to pay the claims submitted by their policyholders, paying for operating costs, and pay profits to their stockholders.
  • Remaining competitive in the markets they serve.

Insurance companies do serve a valuable role in many industries in that they allow individuals to extend their own risks for business’ sake.

How many of us would allow our 16-year-old to drive if we knew our budget would be soaked for the cost of physical damages and injury to others whenever that teenager had an accident?

By paying insurance premiums, we share the financial responsibility with the parents of other teens and reduce our own potential costs.

Factors that Affect Insurance Premiums

Statistics provide the basis for rates charged by insurance companies. Often these statistics are collected for at least twenty years before a rate change.

The following statistics affect your rates:

  • Age, gender, and marital status  some states are restricting the use of gender for rates
  • Driving record – of those covered under the policy for the last three to five years
  • Credit Score  This does not include your whole credit score, just the aspects that affect insurance
  • Vehicles Type – High-performance sports vehicles cost more to insure, as do newer vehicles
  • ZIP code – Where you live is important because rural areas tend to have fewer claims than urban areas
  • Vehicle usage  Usage of your vehicle including a daily commute and overall mileage per vehicle.
  • Type of Policy  If you have not had insurance, a new insurance policy can cost more.
  • Claims history – The claims you have submitted in the past reflect on your rates now, depending upon the type of claim and amount of the claim. National Databases keep track of claims and are accessible to insurance companies
  • Liability Coverage – Higher limits cost more, but recognize that your state’s limits must be met.
  • Comprehensive and Collision  The higher the deductible, the more likely you are to get a break in premium

Discounts that May be Offered

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Each insurance company has discounts that may or may not be applied to premium costs. In many instances, it is necessary to ask about these discounts. A sampling of them is:

  • Driver’s Education courses for new drivers
  • Good Student Discounts may be available for those under 26.
  • Multi-car discounts if you have several vehicles.
  • Purchasing home insurance as well as auto insurance from the same company can save premiums.
  • Protection devices installed on your cars such as airbags, anti-lock brakes, and anti-theft devices.
  • Belonging to certain organizations or professional groups may earn discounts with some companies.

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Comparison-shopping for Insurance

The most effective method of saving premiums on insurance is to do comparison-shopping by obtaining at least three different quotes on auto insurance.

Many individuals purchase auto insurance from the same company year to year without examining either their coverage or comparing premiums.

You should do this on an annual basis to assure yourself that you are not spending an excessive amount of money on insurance.

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Compare Insurance Companies

Rates vary among insurance companies, as does consumer satisfaction. To assess this, you can acquire information from the following sources:

  • Your state’s insurance department will have information about licensing, financial status, and claims satisfaction with regard to insurance companies.
  • National Association of Insurance Commissioners (NAIC) a national organization established to give access to insurance information.
  • A.M.Best Rating services for financial information on insurance companies.
  • Standard and Poor’s Ratings, a company which provides information about the stock market and insurance companies.

Be certain to read the information about each company’s rating procedure and what the ratings mean.

Compare Liability Coverage

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Look at your state’s insurance website or motor vehicle department to find out the minimum limits of liability required in your state. Most states encourage you to purchase higher limits of liability to protect yourself against lawsuits.

The limits suggested here are reasonable:

  • Bodily Injury Liability  pays for your responsibility to other parties if you are legally responsible for hurting someone in an accident. Limits are stated as $100,000 per individual and $300,000 per accident
  • Property Damage Liability  pays for your legal responsibility for damage to the property of others in an accident. $50,000 is recommended

Before deciding that the above limits are excessive, consider the costs of medical treatment, legal fees-if any, rehabilitation, loss of income, and all the other aspects of an automobile accident.

Property damage liability will help repair the other party’s vehicle or property involved in an accident.

Recently a claim was filed because a teen driver lost control and demolished a large portion of a house valued at over $100,000. Repairs in such a case can be higher than your limits.

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Compare Physical Damage Coverage

Liability coverage does not pay for damages to your own vehicle. To provide this protection, you must purchase comprehensive and collision coverage:

  • Comprehensive coverage pays for damages to your own vehicle from the following perils: animal damage, glass breakage, vandalism, theft, hailstorm, and windstorm
  • Collision coverage  pays for damages to your car from collisions

Deductibles apply to physical damage coverage. A $500 deductible is usual, but higher deductibles can earn premium credits. Consult with your lien-holder before setting your deductible.

Evaluating Quotes

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After providing each insurance company with the information they need to prepare a quote, or estimate of insurance, carefully consider each to make certain that they have included the coverage needed, indicated premium credits offered and represented your vehicles and drivers accurately.

Take the time to ask each company if you qualify for further discounts. Good driver discounts might be available as may be claim-free discounts.

Evaluate each company’s financial situation and claim records to determine the most reliable company.

After evaluation, choose the best company for you and your family. Plan to examine your insurance again next year to make sure your choice is good again.

Use the FREE comparison tool below to start your search for car insurance quotes today!