Affordable Auto Insurance: How Do Insurance Companies Calculate My Premium?

Affordable Auto Insurance: How Do Insurance Companies Calculate My Premium?
So, you're finally ready for that sweet ride you've been
dreaming of since junior high, but then some buzz kill
reminds you that maybe you better look at how much
insurance is going to cost you. Yow! How did they get that
number? When researching the most affordable auto insurance
rate, it helps to know what statistical components most
insurance companies take into consideration. Since the
insurance business is based on intelligent hedging, several
commonalities show up regularly in auto premium
calculations. They include:

* Driving record. You play; you pay. Your personal driving
statistics are perhaps the most important component of your
premium. Speeding or other moving violations count against
you, but accidents will drag you down the furthest, causing
not only damage to your car or yourself, but also bringing
the onset of raised premiums or even dropped coverage.

* Age of driver. Car insurance for the young driver is
notoriously more expensive, but premiums drop dramatically
for drivers over the age of 25 with good driving records.

* Gender. Here's where the gender gap still lives, hiding
behind statistics that say men under the age of 30 tend to
be involved in more accidents.

* Car. One of the bigger drawbacks to having a sweet little
sports convertible is that the insurance on them tends to
be much higher than on the good ol' practical sedan. This
is not a direct penalty for being cute—but indirectly
it is. Such cars are more often theft targets, cost more to
repair and are involved in more costly accidents. On the
other hand, driving a safer, more reliable vehicle is one
of the quickest ways to lower your premium.

* Lifestyle. No, it doesn't seem fair, but people who are
married, or married with children, statistically have lower
incidences of accidents, and therefore pay lower premiums.
Likewise, if you live two miles from your workplace and
don't use your car very often for travel, your premium
could be negotiated down. On the other hand, if you reside
in a statistically high crime rated area or city, your
premium may shoot up.

* Credit history. Believe it or not, your bill-paying
history is also factored into many premium calculations.
Insurance companies tend to overlook a lack of credit
history, but they do not look kindly upon people with poor
credit, because statistically these people also file more
accident claims.

* Additional coverage. If you're going for liability-only
insurance, this is obviously going to be less costly than
premiums including features like collision coverage. On the
other hand, one accident may wipe you out financially if
you only have liability insurance.

A handful of states are revising their laws to void the
inclusion of some of the factors you may have found
questionable in the above list. Massachusetts, for example,
passed a law effective April 2008, which disallows for
consideration of occupation, income, education, credit
information, marital status, gender, and age (except for
drivers over 65).

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Ryan Patterson is president of US Insurance Online, based
in Austin, TX. He graduated in 2000 from the University of
Texas with a combined business and computer science degree,
and started US Insurance Online in May of 2005 with fellow
entrepreneur Jim Waltrip. Visit
http://www.usinsuranceonline.com for help shopping for
insurance and for free insurance quotes.