How Auto Insurance Rates Are Calculated
Date Added: June 08, 2008 02:08:42 AM
It is not uncommon to find that Florida residents may pay more compared to their counterparts in say Maryland. This may be explained by the fact that Florida is amongst the 12 states in addition to the Commonwealth territory of Puerto Rico that offer a ‘no-fault’ insurance scheme that is not applicable in other states .
Individual insurance carriers underwriting guidelines are also an integral part of how auto insurance rates are calculated. A base rate is the platform on which a premium is calculated and is dependent on the type of car being insured and the geographical area where the driver resides. However, it should be noted that insurance company rating systems can vary, even for the same geographical location.
Additionally, insurers tend to take into account your credit scoring, loss averages, your occupation, education, age, gender, marital status and your driving record - including miles driven per year, amongst other things.
Here is analysis of why some of these factors are taken into account when calculating how much auto insurance you will pay:
Credit Scoring
It will come as a surprise to most people but there’s indeed a direct correlation between consumer’s credit history and insurance claims. Independent surveys have shown that people with a poor credit history cost more to insure. Most insurers use a credit scoring system similar to that used by lenders to predict the reliability of an applicant paying a loan. To avoid being prejudiced, it is important to make sure that
the insurer has your correct name, address, social security number, and date of birth.
Marital Status
Actuarial tables show that single men between the ages of 18 and 24 are in far more accidents than their married counterparts. But even so, a married person will pay less than a single person with an identical driving record. Before you gasp, it's in fact perfectly legal in most states for insurers to practice this type of discrimination. Not all insurance companies utilise these practices however - always shop around before making any decision.
Age
Statistically, drivers under the age of 30 have more accidents per miles driven than those over age 30. Drivers between the ages of 50 and 65 generally have the safest records. The implication is that young drivers are charged higher rates, as are families with young drivers in the household. If you are still living with your parents, it may actually be cheaper to be insured under your mom or dad’s policy rather than on your own.
Geography
Where you live can positively or negatively impact on how much insurance you have to pay. People residing in areas with little or no traffic are likely to pay less insurance than those living in congested cities or suburbs. This is because areas with a lot of traffic tend to see more accidents. Additionally, the inner city has more uninsured motorists compared to smaller towns or the rural areas. And there’s always the problem of limited parking in inner cities. Some neighbourhoods also have a higher rate of vehicle thefts, all of which can result in a higher auto insurance premium.
Your Driving Record
A surcharge is normally applied for drivers who have been involved in an accident or convicted of multiple traffic violations. And the more claims you have made, the higher your rates are likely to be.
Occupation
A courier is most likely to be involved in an accident than the personal banker sitting at their desk all day and is, therefore, considered a higher risk. On the other hand, people with more stressful jobs such as attorneys/lawyers/judges, executives and business owners tend to pay more than scientists, pilots/navigators and actors/performers/artists.
Your Car Make and Model
Generally, the more expensive your car, the more insurance you’re likely to pay. Sports cars and high performance cars cost more to repair and are more likely to be stolen, therefore, they tend to cost more to insure. If you’re considering buying a car, please see: Should Auto Insurance Be A Factor When Buying A Car?.
