Auto Insurance - How Are Car Insurance Rates Calculated
There is are specific calculations that insurance companies use to determine your auto insurance rates. These calculations are more complicated than some of the most complex calculus equations. Powerful super computers are used to determine the risk of a driver. Once a driver's personal risk profile has been calculated, then it is compared to the historical records in the auto insurance company's database. A person on their own could not possibly understand the insurance rating system in its entirety, but a good comprehension of the basics will do.
The Different Components That Determine Your Auto Insurance Rate
State law regulates the auto insurance companies, so the state in which you live is by far the most important component in calculating the price of auto insurance. For example, the state of Hawaii has extremely liberal liability laws and a huge number of uninsured motorists. North Dakota, however, has much more conservative laws and fewer uninsured drivers. As a matter of fact, North Dakota has fewer drivers period. Take into consideration that if there are a lower number of cars on the road, then there is less chance that an accident will happen. As a result, the average insurance premiums paid in Hawaii are almost three times higher than the insurance premiums paid in North Dakota. Aside from your state of residence, the other important factors the determine your rates are more personal and statistical. They include your age, your gender, and your marital status. Other factors that come into play are your driving record, your credit history, where you reside, and the make and model of your vehicle or vehicles.
Reasons Why Age, Gender and Marital Status Affect Your Car Insurance Rates
The car insurance company's goal is to determine your "risk factor". Because they have many years of statistical data, they know that drivers between the ages of 16 and 24 are involved in a higher number of accidents, drivers between the ages of 50 to 64 are in the fewest number of accidents, and starting at the age of 65, people begin getting in more accidents again. By the time individuals reach the age of 75, they are even more commonly in auto accidents than the younger group of drivers. By and far, women are in less accidents than men. Gender is especially important concerning people under the age of 25. Younger men are in far more car accidents than younger women. Statistics also prove that this risk is also offset by marriage. Time has shown that married men ages 18 to 24 are in much fewer accidents than single men.
Other Factors that Come Into Play In This Calculation
A person's driving record is an very important factor in determining the price of their auto insurance. The insurance companies have calculated that if you are in one accident, there is a higher probability that you will be in a another accident. If you have a second accident, then there is an even higher probability that you will be in a third and so on. If you are in multiple car accidents in a short period of time, your auto insurance rates will quite possible go through the roof. An individuals credit history is also an important factor in determining their car insurance rate. This is quite controversial, but the insurance companies have historical data showing that, as a whole, people with a lower credit score cost more to insure. Where you reside is also an important factor. The city of your residence indicates how much daily traffic you will encounter. Also, some cities have a much higher number of car thefts than other cities do. One last factor taken into consideration is the type of car you are insuring. It is a well known fact that similar cars get into more accidents, some cars sustain more damage in accidents, and some cars cost a lot more to repair. These are all important factors in calculating the amount of risk that you pose to an insurance company.
How Does This All Sum Up?
After taking all of these things into consideration, the insurance company assigns you a what is a called a "rating factor". This factor is then multiplied with the "base rate" for each type of coverage you have selected. As an example, an auto insurance plan may be priced at $550 every six month period for someone with a "preferred rating". However, if your rating factor is 1.7 because you pose a higher risk to the insurance company, you will be charged $935 for the same coverage. This is determined by multiplying $550 times the rating factor of 1.7. It is important to realize that not all insurance companies use the same criteria to determine car insurance rates. Companies weigh various risk factors differently. That is why it is very important to compare multiple rates from different insurance companies for your car insurance. One company may calculate a rating factor of 1.7 for you while another insurance company gives you a much lower rating factor or even a preferred rate. The only way to get the best auto insurance coverage for the lowest price is to compare quotes. There are many websites available that make this easy by offering multiple auto insurance quotes from various insurance companies.
Christopher Harden is an insurance agent, website developer and prominent SEO professional and author. He has developed and maintains a multitude of websites pertaining to varioius lines of personal insurance products as well as many other niche online markets. He is currently the owner of Executive Broker Services, DoQuotes Insurance, and Rare Productions.
Article Source: ArticlesBase.com
