Insurance price factors you can control
Comparing auto insurance quotes is usually the best way to get the lowest rate since there are dozens of auto insurance companies on the market, each with their own formula to determine how much you’re going to pay every month. Every company will offer their own discounts for various situations (being a good student, having no accidents, etc.) making it impossible to point-blank tell somebody “Geico is always going to have the best rates” or “State Farm is going to cost you a fortune don’t go with them”.
One common misconception about doing this is that it’s going to hurt your credit. This is not correct. Unlike shopping around for rates for a loan, which may slightly hurt your credit for a few months, shopping around for auto insurance does not. Most auto insurance companies will pull your claim history (if you have any) from a third party provider similar to a credit reporting bureau. Most major insurance companies get this from the CLUE database provided by LexisNexis. Just like with your credit report, LexisNexis is required by law to give you a free report of your insurance claims every year.
Driving a Safer Vehicle
Auto insurance companies don’t like it when you drive a vehicle with a low safety rating, even if you have a clean driving record. Their concern is that if you do get into an accident (and it is a “When” not “If” – about 98% of Americans are involved in an accident at some point in their lives) and if the accident is serious, your injuries are going to be much worse than they would have been in a safer vehicle.
Minimum limits of medical insurance vary from state to state but auto insurance companies aren’t always concerned with the nominal limits. They may only be on the hook for as little as $50,000 in a bad accident that injures several people since that’s the minimum limit (also part of what’s known as Minimum Coverage) allowed in many states. What worries them is another driver hitting you and either not having insurance or not having enough insurance to cover your medical bills, while you carry uninsured/underinsured driver coverage. All of a sudden, they might be on the hook for $1 million if you or other passengers require long-term care.
This is why you’ll often see insurance premiums come out to about the same price for a new(er) vehicle and an older, less safe vehicle, even if the newer vehicle is worth five times as much as the older one. Similarly, a coupe is almost always going to have a higher premium compared to a sedan. This is mostly because people tend to drive coupes in a more reckless manner and if you need to get out of the car fast (flipped car, fire) it’s going to be much easier for those in the back to egress from a sedan.
While I explained that driving a safer car will result in a lower rate as compared to a cheaper, less safe car, the value of a vehicle does play a part in how much you will pay. An Aston Martin is going to cost more to insure than a Cadillac specifically because of how much it would cost to replace it. Going back to the uninsured/underinsured coverage issue, your insurance provider knows that it only takes a $1000 beater to total a $100,000 vehicle. The person who is driving the cheaper car likely cannot afford to pay the difference between their property damage limit and the actual value of a car that costs 6 figures. Even if you’re a safe driver, exotic cars and anything over about $70,000 is going to receive an upcharge from your insurance provider.
The fewer claims you submit (or are submitted against you), the better rate you’re going to receive. Speeding tickets and previous accidents will affect how much you’re going to pay in monthly premiums.
Many states have defensive driving programs you can take once every year or two to remove a speeding ticket from your driving record. Some insurance companies even encourage you to take these programs without a speeding ticket and will give you a discount on your premiums.
How accidents affect your auto insurance is dependent on where you live. Some states do not allow insurance companies to charge you more because of accidents where you are not found at-fault, while others basically let the insurance companies charge you whatever they want. In general, an accident that clearly is not your fault, as evidenced by a police report or judge, will not cause your rates to go up. A history of accidents may be frowned upon by other insurance providers if you want to change insurance companies.
You can’t avoid every accident but you can be attentive to the road and avoid accidents that are clearly your fault. At-fault accidents will cause your auto insurance rates to jump faster than just about anything else. This holds even more true if your insurance company sees a pattern emerging of multiple accidents, which points to the fact that you probably are not a safe driver. In those cases, you’ll be lucky if they just jack up your price and not dump you completely.
Keeping your claims, tickets and accidents down though should get you a better deal on insurance than those who have recorded driving issues.
Limits, Deductibles and Coverage
Lowering your insurance limits is one way to reduce the amount you’ll pay in monthly premiums, but it isn’t always the smartest choice. Just about any vehicle you are still paying off will need full coverage insurance, which covers at least your state’s minimum liability limits, as well as collision coverage (for damage to your vehicle in an accident) and comprehensive coverage (weather, theft, vandalism).
Even if you don’t have a loan out on your vehicle, full coverage may still be a good idea if your car is worth more than a few thousand dollars and/or you wouldn’t easily be able to pay for a replacement if your car was totaled.
Your deductible is the amount of money that your insurance will not cover if you submit a claim to them. The standard is around $500 but you can increase the deductible to $1000 or even $2000 with some insurance providers. A higher deductible will give you a lower rate, which is more than worth it if you never submit a claim. If you are insuring a vehicle worth a lot of money, you can probably get away with a higher deductible since a repair, or an event that totals your vehicle, will cost far more than your deductible.
A quick overview of the types of coverage you can get through most insurance providers would include –
- Liability coverage (required) – This is often split into $X/$X/$X format, which stands for the bodily injury limit for one person, bodily injury limit for an entire accident, and property damage limit. EDIT As u/macmaverickkposted in the comments, your state’s minimum limits are the bare minimum requirement for driving legally. Some states (California as per his example) have very low limits that would likely expose you to lawsuits for even a relatively minor accident. Getting higher limits will cost you a little more each month, but if you get into just one serious accident in your lifetime, it will have likely more than paid for itself.
- Collision coverage (required if you have an auto loan) – This is how much coverage you have to replace your own vehicle if you damage or destroy it in an accident where you are found at-fault.
- Comprehensive coverage (required if you have an auto loan) – Non-driving events that cause damage to your vehicle are covered under this. Weather damage, vandalism and theft are by far the three biggest claims under this type of coverage.
- Uninsured/Underinsured driver coverage (sometimes required if you have an auto loan) – If you have this, your insurance will pick up the tab for injuries or damage to your vehicle in cases where the other driver in an accident that isn’t your fault has no insurance or too little insurance to cover everything.
- Gap coverage (sometimes required if you have an auto loan) – In the event your car is totaled and you owe more on your loan than what the insurance company determines the value happens to be at that point in time, this coverage pays the difference to your loan provider.
Extra types of coverage will cost a little more, but it may be worth the peace of mind if you aren’t completely financially secure.
Insurance price factors you can’t control
Even though you really can’t control these factors, I’m going to touch on them so you know what to expect.
- Age – 16-24 year olds will usually see higher insurance premiums than older drivers, who presumably have more experience behind the wheel. This gap is especially prevalent with 16 and 17 year olds who will have almost no experience and likely still be in high school. Good student discounts can kick in even at this point, since insurance companies know that better grades usually points to an individual being more responsible. After about 45 years, rates start rising once you hit about 70 since your eyesight generally gets worse and your reaction time isn’t quite as fast.
- Gender – Health insurance companies cannot factor your gender into their premium calculations but auto insurance companies absolutely can (except in Colorado and Montana ). Males are going to be charged higher premiums than females if everything else is equal. The difference may not be a lot, but there seems to be little push to change it, mainly because either the rates for men would go down or the rates for women would go up. Take a guess at which choice the insurance companies would pick.
- Zip Code – While you can technically control where you live, it is impractical to base your housing decisions on saving a few dollars a month on auto insurance. Areas with a higher crime or accident rate will see higher premiums as opposed to areas with lower crime rates and safer streets.
- Marital Status – Married couples and those in civil unions usually see a slight drop in insurance rates after they tie the knot. Insurance companies figure those who are single might be prone to being a tad more reckless.