What Determines The Price Of An Auto Insurance Policy? (2024)

Plenty of factors go into determining car insurance costs. Some, like location, vehicle type and driving history, are fairly straightforward. Others, like credit history and marital status, may be a bit more surprising.

#1 Your Vehicle’s Make, Model and Age

The age and type of vehicle you drive impact the cost of car insurance. Insurance companies consider the average cost of claims for different types of vehicles when setting rates. Luxury vehicles with new technology and advanced safety features cost more to repair or replace, so they typically cost more to insure.

So that means a newer, more expensive vehicle with many bells and whistles costs more to insure than an older base-model vehicle with a lot of miles. And a sports car is considered a higher risk than a minivan, so it has a more expensive insurance policy.

The brand of vehicle also affects your auto insurance premium. According to Quadrant Information Services, Dodge has the highest car insurance costs on average, and Mazda has the lowest.

#2 Age

Age can impact car insurance premiums considerably, particularly for motorists under the age of 25 or over 75. This is because insurance companies look at perceived risk when determining rates.

Inexperienced young drivers are statistically more likely to make mistakes or take unnecessary chances behind the wheel, and older drivers tend to run a higher risk of getting into accidents after the age of 70.

*Cost data based off 2022 information

#3 Location

Where you live and where you park your car overnight — known to your insurance company as your garaging address — affects your auto insurance rate. For example, motorists in large cities typically pay higher rates than drivers in rural areas. Here are some reasons why:

• Having more drivers on the road in urban areas means there’s an increased likelihood of collisions.
• There are higher rates of vandalism and theft in large cities.
• Vehicles often don’t have covered or protected parking in cities, leaving them more vulnerable to damage.

Why Is Car Insurance More Expensive in Some States?

In addition to where you live within your state, the state itself affects your insurance prices. If you live in a state where hurricanes or heavy snow are common, you’ll likely pay more for car insurance. If you live in a state that’s densely populated, you can typically expect to pay higher car insurance premiums as well.

Car insurance is regulated by states, so each one has different minimum coverage requirements, if any. Drivers in states that require more than liability insurance or mandate higher policy limits usually pay more for coverage than people in other areas.

Based on the average cost of full-coverage car insurance per state, the most expensive states are Michigan and Connecticut. The states with the cheapest car insurance on average are Maine and Ohio.

#4 Driving Record

Having a clean driving record – meaning no tickets or accidents – is one of the most important things you can do to save money on your auto insurance. Many auto insurance companies offer some type of good driver or claim-free discount to encourage safe driving habits.

Of course, accidents do happen. But different types of accidents and moving violations are rated differently in terms of risk, so they impact your car insurance rates differently. The amount of time an accident or ticket stays on your record varies by state, but it’s generally three to five years. However, some violations, like DUIs, could stay on your record for longer.

A speeding violation for 1 to 5 mph over the speed limit results in an average increase of $409 annually for full coverage. If you have three accidents on your record, your rate will go up an average of $3,620 annually.

#5 Gender

The gender listed on your driver’s license is another factor that affects your car insurance costs. Men tend to have higher premiums because they’re more likely to take risks while driving and  get into accidents.

However, the following states don’t allow gender to be used as a factor in determining car insurance rates:

#6 Marital Status

In every state except Massachusetts and Michigan, your marital status impacts how much you pay for car insurance. Married drivers typically pay a bit less than single drivers.

Part of this comes down to rating, and the other part comes down to discounts. Insurance companies view married drivers as safer, less likely to take risks and more financially stable since they pool their assets. Married drivers might also be more likely to qualify for bundling or multi-vehicle discounts than their single counterparts.

#7 Credit History

In most states, your credit history can also be considered when providers determine your car insurance premiums. Insurance companies view your credit history similarly to your driving history. Drivers with lower credit scores seem more likely to take chances behind the wheel, and they’re considered high risk.

The following states have banned insurance companies from using credit scores to help determine rates:

• California
• Hawaii
• Massachusetts
• Michigan

Maryland allows providers to use your credit score to set your rate on a new car insurance policy but not to raise your rate when you renew, deny you a policy, cancel it or refuse to renew it.

Similarly, Oregon and Utah regulate how credit scores are used by insurance companies. These protections include banning insurers from canceling or declining to renew your policy because of your credit after you’ve had a policy for at least 60 days.

#8 Claims History

Insurance companies are risk averse, and a long claims history will undoubtedly cause your premium to go up. Checking your claim history can tell you how much your rate increases and for how long will vary by insurance company and by state.

Even a single insurance claim, or a claim you weren’t found at fault for, could lead to an increase in your premium. However, some insurance companies offer accident forgiveness if it’s your first at-fault accident, so your rate won’t go up. Otherwise, claims typically stay on your record for three to five years.

#9 Deductible

Though many car insurance rating factors are beyond your control, one you can directly impact is choosing a higher or lower deductible. Generally speaking, the higher the deductible, the lower the insurance rate. But that doesn’t mean it’s always a good idea to go for the highest deductible to pay the lowest premium.

Think about deductibles this way: if you needed to file a claim tomorrow, how much could you

afford to pay without stressing your finances? Keep your deductible close to (but below) that

amount.

If you decide to go with a higher deductible, one option is to put any money you save on your premium into a savings account to have on hand if you ever need to pay your deductible.

#10 Types and Amounts of Coverage

The types of insurance you get and the coverage limits you choose also impact how much you pay for auto insurance. Every state except New Hampshire and Virginia requires some form of auto insurance. But beyond just meeting your legal obligation and the minimum requirements for your state, you have many options for additional car insurance coverage.

It’s important to understand your needs and your finances when choosing types of insurance and their coverage limits. Determine whether minimum or full coverage is best, as well as whether you’d benefit from other add-ons. Below is a list of the types of coverage to consider: