Here are some helpful tips on understanding car insurance prices
Blake Anderson Blake Anderson

Have you ever had this happen: you routinely pay your car insurance premium, occasionally getting a slight increase when renewal time rolls around, and then one day, your renewal rate dramatically changes? Or perhaps you are in the market for a change with your car insurance, and you request quotes from different insurers and the results you get vary widely, even for what appears you be the same coverage.

Or perhaps you've requested quotes from different agents working for the same insurance company for what you think is the same coverage package and yet, you get widely different rates quoted to you.

Welcome to the world of car insurance prices.

While getting an accurate and consistent quote for car insurance coverage may sometimes feel like a Riddle of the Sphinx moment, there are some common factors to be aware of when trying to decipher what you're being charged.

Factors determining cost

Each insurance company uses a different model for setting its rates, but some of the factors used by every insurance company when calculating auto insurance rates for a new client include:

  • Age of the driver(s)
  • Age of the car(s)
  • Where the driver(s) live
  • Make/model of the car(s)
  • Income level of the driver(s)
  • Marital status of the driver(s)
  • Profession of the driver(s)
  • Credit score of the driver(s)

You'll notice that most of these factors have nothing to do with your driving record. Insurance companies rely on actuaries to sift through mountains of historical data and trends to develop risk profiles for select demographics. These profiles are the filter through which car insurance prices are set for drivers.

Every state has an insurance commissioner or an insurance department that approves the range of premium rates, the coverage options offered and the breadth and scope of discounts that can be offered by any licensed car insurance provider in that state. Those are generally wide ranges, and you will have to do some legwork on your own for more accurate comparisons.

Things you can do to curb prices

There are a number of steps you can take to lower the price you will pay for car insurance coverage. If you currently have insurance, maintain a safe driving record, avoid tickets that can earn you "points" against your driving record, avoid DUIs and generally be a responsible driver. More and more insurance companies offer reduced premium costs for drivers renewing policies that have incurred no claims. Reduced deductibles are now a standard discount for drivers who go select periods of time with no claims.

Other steps you can take to lower your auto insurance costs include:

  • Increase your deductibles
  • Decrease your levels of coverage
  • Reduce the number of miles you drive each year
  • Buy a newer/safer car

Reducing coverage may actually cost you more.

The two most expensive elements of any car insurance policy are your bodily injury liability coverage and collision coverage. Knowing that you might think you can easily reduce your car insurance costs by limiting or reducing the levels of these two options. This may not work and could actually cost you more in the long run.

Every state sets a minimum required level of liability coverage (both bodily injury and property damage liability) but here's a catch: nearly every car insurance company will give you a better rate on higher levels of liability. For example, say you live in Ohio where your liability requirements are pretty low - $12,500/25,000 for bodily injury liability and $7,500 for property damage liability. You will actually get a better rate on your Ohio car insurance prices by having liability levels set at, say, $150,000/300,00 for bodily injury and $50,000 for property damage.

Why? Nearly every insurance company is going to reward you for protecting yourself (and them) with higher levels in place. Setting higher levels also show you are a responsible driver, which is an important factor in establishing an insurance history. If you routinely skimp on essential coverage options, car insurance companies will consider you a risky or irresponsible driver and quote you higher rates.

When it comes to the other priciest part of your car insurance policy, collision, there are a few steps you can take to lower your price. For one thing, be sure you need it. If you own your car outright and its market value is less than the total of your collision coverage plus the deductible, ditch the collision. If you have to take collision, pick the highest deductible you're comfortable with.

Get quotes and demand discounts.

If you still feel like your car insurance prices are just too high, take more aggressive steps. For one, ask your agent if you're getting all the discounts you're eligible for. Some companies out there boast more than 50 separate discounts for car insurance premiums. (If you're curious, visit the website of your current insurer and see what they're touting and if you're getting it.)

Don't be afraid to express your concerns directly to your current insurer relative to price. You should routinely be comparing prices, and there are dozens of online services that can facilitate that for you. If you find a better price, don't be afraid to ask your current insurer to meet or beat it.

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  • Blake Anderson