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How Your Auto Insurance Premium is Determined

iStock_000033988744_SmallAs you compare quotes on auto insurance, you might notice something surprising: Premiums can vary widely between companies, even when two or more policies are roughly equal in value. That’s because auto insurance companies all use slightly different formulas to calculate your risk, which is the underlying factor determining your premiums.

Having said that, most insurance companies do base their risk formulas on some common factors. While some of these are out of your control, understanding the factors that affect your premiums can help you to potentially work toward getting a lower rate.

Where you live. If you live in an area that is notorious for auto theft, this unfortunate factor could definitely influence your auto insurance premiums. Parking your car in an enclosed garage may help to lower your rates, depending upon your insurer.

Your age. Advanced age generally translates to more driving experience, and therefore less risk of an accident. However, once you enter your senior years, you might see a slight rate increase due to the fact that reflexes tend to slow as we age.

Your gender. Men, particularly young men under age 30, are involved in more fatal car crashes. Unfortunately this usually translates into higher auto insurance premiums for men, but the gender gap narrows as age increases.

Your marital status. Many insurance companies assume that married people are more responsible, and therefore safer drivers. This could translate into a small decrease in your insurance rates if you get married. However, if you marry someone with a poor driving record, you might see the opposite effect once you merge policies.

Your driving record. Your driving record is possibly the most reliable indicator of your driving ability and you will most likely enjoy lower auto insurance premiums.

Your vehicle. You might be surprised to learn that newer cars are often cheaper to insure than older ones. There are several reasons behind this logic, including advanced safety features on new cars, and better anti-theft protection.

How you use the vehicle. The more you use a car, the more likely you are to be in an accident at some point. Those who commute less than 10 miles one way could be eligible for a low mileage discount.

Some factors, such as your age, are beyond your control. But if you’re trying to reduce your auto insurance premiums, taking steps such as avoiding traffic tickets, choosing a safe neighborhood, or reducing your commute could help you reap more affordable premiums. For more information on how auto insurance premiums are calculated, or to compare rates with different insurers, give us a call for more information.