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Factors That Drive Up the Cost of Auto Insurance

According to an annual report by AAA, the average cost of auto insurance rose 9.6% to $1,222 in 2016, and these cost estimates are based on lower-risk drivers with good driving records. Lower gas prices are largely to blame for rising costs, because car owners can afford to drive more miles, which tends to result in more collisions and higher insurance payouts.1

Auto policy premiums can vary widely because they are customized for each policyholder using mathematical formulas that reflect the perceived level of risk. Here's a closer look at the primary factors that typically determine the price of auto insurance and some tips to help lower your own premiums.


How Do You Rate?

  • Driving record. If you have a clean driving record, you will generally pay less than drivers who have had accidents or received traffic violations. Inexperienced drivers may have to pay more for coverage than those who have been insured for awhile.
  • Credit history. Many insurers use credit-based insurance scores to analyze the likelihood of someone filing a claim. Therefore, your debt levels and payment history could have a positive or negative effect on your premium costs. 
  • Age and gender. Both age and gender tend to influence the cost of premiums. As a group, women have fewer accidents than men, so they may be rewarded with lower premiums. It's also no surprise that teenagers and young drivers under age 25 are often charged more for coverage.
  • Type of vehicle. Premiums are generally based on the current value of the automobile(s) to be covered, but they may also take into account the size of the engine, the cost of repairs, and the presence or lack of certain safety features and theft deterrents.
  • Number of miles driven. Spending a lot of time behind the wheel can increase the odds of being involved in an accident. Drivers who log more miles during the year will generally pay more for insurance, whereas occasional drivers may qualify for a discount.
  • Where you live and/or park your car. You may pay more if you live in certain states, in a ZIP Code where claims are prevalent, or in an area that is subject to higher medical or auto-repair costs.
  • Filing claims. Filing even one auto insurance claim could significantly increase your premium. But this might not always be the case, especially if you were not at fault in an accident.2

Cost Control

Of course, the types and level of coverage that you choose to purchase (over and above a state's required minimum liability amounts) will also influence premium costs. A deductible — the amount a policyholder must pay before the insurer pays the balance of a claim — usually applies to comprehensive and collision coverage, which pay for damage to the vehicle (up to the policy limits) when you are responsible. In many cases, raising your deductible could help lower your premium costs.

If you have an older, inexpensive car, you might consider dropping optional comprehensive and/or collision coverage to save money. But keep in mind that this coverage may be required by the lender if you borrowed money to purchase your automobile.

Making an effort to drive carefully could help you avoid costly accidents and injuries and steer clear of steep premium penalties. You might also score additional good-driver discounts on auto insurance.