How Insurance Rates are Set

Each company uses a different “model” to decide what to charge people. But some common factors include:

  • Your age
  • The kind of car you drive
  • Whether or not you're married
  • Where you live
  • Your income
  • Your credit score

What do any of those have to do with how well you drive? Nothing. But they are what insurance companies call “statistically significant indicators” — they tell the insurance companies how likely you are to file a claim. While it might seem unfair to base your auto rates on something that has nothing to do with driving, past experience has taught the companies that they can reliably predict how much they'll have to pay out based on these factors.

Your driving record is important. The amount of time you've been driving and the number of accidents you've been involved in are possibly the two most important factors in determining your rates. So driving safely and keeping a clean record will help lower your monthly auto premiums.

And these factors vary from company to company. So to find the best value you have to shop around. One company might think you’re a poor risk, and want to charge you a bundle of money for coverage. Another company might think you’re a great risk, and cut you a deal.

A professional insurance agent can point toward the best companies for your situation and help you find the best prices on coverage. To get matched with agents, use our free online quote service.

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