Is my age a factor in car insurance?

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Here's what you need to know...
  • Risk is used in determining rates in a number of ways
  • As a driver ages and gets experience, the rates will gradually drop
  • A policy that is considered a preferred risk will receive the best rates

As a consumer, it is not out of the ordinary to wonder just why age matters to all insurance companies who are covering a vehicle against different types of financial loss.

Insurance premiums are based solely on risk and age is said to affect the likelihood that a policyholder will file a claim.

While shopping for automobile insurance and trying to find the best rate, it’s crucial to understand how your own personalized rates will be constructed.

A consumer shopping for insurance should want to know why they are paying the rates they are paying for a specific amount of insurance.

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Why is the risk so important to insurance carriers?

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To an insurer, a risky driver is a driver that is likely to cost the carrier money.

This is why the company will spend days or even weeks underwriting an application for coverage and assessing risk before they will extend an offer of insurance with an official premium to the applicant.

Some of the different steps that are taken as an application are being underwritten include:

  • Verification of VIN for covered autos
  • Request for the motor vehicle report of each driver
  • Request for the Claims Loss Underwriting Exchange report for each driver
  • Review of prior insurance
  • Assessment of usage factors
  • Verification of household members at the address
  • Classification of the drivers to a risk class

You might be wondering why a company might be concerned with something as minor as your date of birth when they are assessing risk or assigning you to a rate class.

While this might seem like a minor demographic factor that has no bearing on your capability to drive, every single factor is used to assign different drivers to risk groups.

If one factor is left out, the premiums that are charged will not account for the risk that the driver is presenting.

Since everything is based on data, facts, and formulas, age is not just a minor detail, it is a major detail that must be included.

How is risk used to determine auto insurance rates?

In order for a company to charge a specific client a specific rate for their driving record, age, years of experience, or claims history, the company must have a rate filing approved by the Department of Insurance in the state.

If the rates are not justified and they have not been filed, the company cannot raise rates.

To make rating a policy much easier to do and to understand, companies will use different risk classes.

What are the insurance risk classes?

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It is an industry standard to rate a policy and then to assign to the policy to a risk class.

Companies industry-wide use three different risk groups or classes as they are assessing and underwriting a policy.

Before you really can understand how age affects insurance, you should take the time to learn about the risk classes.

Here is a breakdown of the three groups applicants can fall into:

– Preferred Risk

A policy that is considered a preferred risk will receive the best rates.

Generally, drivers with clean records and several years of experience receive this rating.

The company may also consider the vehicle type, the usage, driving habits, and also the number of non-fault accidents when giving someone a preferred rating.

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– Standard Risk

A standard classification is designed for households that may have accidents or infractions.

The blemishes may be spread out throughout a period of 3 years, but the record is not clear enough for the drivers in the home to be considered preferred.

–High Risk

Homes with high-risk drivers may actually need to find a sub-standard company to provide coverage.

There are a variety of different factors that can make an applicant high-risk, and one of these factors is age.

Youthful operators automatically receive a high-risk rating until they have years of incident-free driving.

In addition to age and experience, the following can lead to the most expensive assignment:

  • No prior insurance
  • Serious moving violations
  • Several at-fault accidents
  • A combination of minor violations and accidents

How does age affect premiums?

If you are wondering just how age will have an effect on your risk assignment and ultimately your premiums, you must consider the claims that are filed in each age group.

Both age and gender work together to affect your rates, especially when you are an inexperienced operator.

The most expensive age groups to insure are licensed drivers between 16 and 20.

Within this age group, males are much more expensive than females who have the same rating factors.

With three years of experience, there will be a drop for young drivers.

From this point on, the rates will drop each year until the driver gets 9 years of experience and eligible for a preferred ranking.

After a driver turns 25, rates will stay competitive for several years. Rates may continue to drop between 25 and 50, but when drivers reach 55 to 60 they will start to see the rates climb once again.

This is primarily because there is a high incidence of claims between 16 and 25 and between 60 and 70.

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