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: Sep 14, 2020

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Key takeaways...

  • Insurance companies use modeling to come up with rates based on unique risks each insured presents
  • Your car insurance premium is based on several factors including your driving record, credit score, location, and use of your car
  • Comparing the various insurers in the market can help you get the most value for the premium you are paying

One of the more common questions that are asked of car insurance companies is how do they actually get to the premium amount?

The premium that is charged for your car insurance is representative of what your insurer thinks is fair in exchange for the coverage you are being provided and the risk that you are presenting.

There are many different factors that can have an impact on your car insurance premium and it goes a far beyond just your own driving record, though that does play a role.

When you think about the premium you are being charged for your car insurance policy, you have to think of it in formulaic terms.

It is all about modeling when it comes to your car insurance company and what they are quoting you for insurance.

Car insurance companies have built up statistics that have led to the rates that they charge based on your record, your car, the use of your car, location, as well as other factors. All of this, when combined together, is what is going to get to that mystical premium amount.

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The Driving Record

It is pretty simple when you think about the driving record and the direct correlation it has to your car insurance premium. Simply put, the better that your driving record is, the lower that your premium amount is going to be.

When you have had car accidents in recent years, traffic violations, among other things, you are going to have to pay points based on your driving record, all of which will drive up the price that you will be paying for the coverage your policy is providing.

The use of your car is another big factor that is going to come into play here. The more miles that you drive your car, the more chance that you have that you are going to get into a car accident.

It does not matter how good of a driver you are, the more miles means the more risk.

When you drive more, your premium is going to reflect that. Even the type of driving can have an impact, whether you are on highways or just going on pleasure use rides around the town.

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The Age and Gender

Age and gender are also going to have an impact. More mature drivers are likely to have fewer accidents than drivers who just got their license. Once you hit the age of 25, your premium is going to reduce greatly.

Gender plays a role here too as women are less likely to get into accidents and will also get lower premiums.

The Car You Drive

The car that you drive is also going to play a role as the coverage that you are getting is going to be representative of the car that is being covered.

If you have a brand new $80,000 luxury automobile, it is going to cost your car insurance company a lot more to replace that car if it is in an accident than an old, used $2,000 car that you putter around town with.

Due to this, the car that you drive will impact the rate that you are charged and also the coverage limits that you are going to need.

Credit Score

Think about your credit score as well. This is also an indicator of the type of risk that you present to an insurer.

If you have a great credit score, it means you are a good, responsible risk and are likely to be taken on at a lower premium amount. A poor credit score is going to have the opposite effect.

These are by no means the only things that are taken into account when your premium is being calculated. You have to think about the following:

  • Where your car is parked regularly
  • The type and amount of coverage that you are requesting
  • The climate that exists in the area you live in, among other things

Every insurer prices policies and particular risks differently, which is why it is so important to do price comparisons of the various insurers out there to get the most value possible.

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