Infographic of a family looking into auto insurance

How is Auto Insurance Calculated? [The 8 Factors Considered]

Shopping for a car insurance policy can be overwhelming. You want to ensure that you are not paying too much but get the most comprehensive coverage for your vehicle. To be able to save on car insurance premiums, you need to understand how auto insurance premiums are calculated. 

So, How is Auto Insurance Calculated?

There are many factors that insurance companies take into account when calculating insurance premiums, and virtually every company has its own formula for determining coverage costs. However, understanding the factors auto insurance providers consider when calculating your car insurance cost helps you understand your rates and save on premiums. 

Whether you are a seasoned driver or a first-time insurance buyer, read on to discover how your auto insurance premiums are calculated. These are the 8 factors that go into the price. 

1. Your Car

The kind of car you drive has a significant role in determining how much you will pay to insure it. Typically, the more expensive your car is, the more it will cost you to insure it. 

Insurers consider how much it would cost to replace your car when stolen or damaged beyond repair. Pricier cars might also be costly to repair, especially if they are rare in your locality and have expensive accessories. Even so, having an everyday vehicle that is not too expensive does not necessarily mean that it will be cheap to insure.

Other variables that will come into play include your vehicle’s engine size, age, safety features, modifications, and desirability. Modifying your car is likely to increase your auto insurance cost, but beefing up the safety and security features can offset this.

2. Your Age

Older drivers are statistically less likely to cause accidents than young drivers due to their experience behind the wheel. In other words, young drivers are at higher risk, so their policy rates are typically higher than those of experienced drivers. Conversely, drivers above 25 years usually get lower rates.

3. Driving Record

When you renew your auto insurance, your insurance provider will review your driving record to check for traffic violations and accidents. Your driving record helps determine how much risk you pose on the road. Generally, better records with fewer claims will attract lower premiums. On the other hand, if you have been involved in many accidents or serious traffic violations, you will likely pay more than you would if you had a clean driving record. 

4. Where you Live

Due to varied rates of vandalism, theft, and accidents in different areas, where you live affects how much your auto insurance will cost. Typically, it will cost you more to insure your vehicle if you live in or around urban areas because of the higher number of risks associated with such locations.

Further, if you live in rural areas where the crime rate is high, be prepared for slightly pricier policy rates. In most cases, shopping locally for insurance will increase your chances of landing better deals. Where you park will also affect your premium—parking in a garage will usually reduce your premium, whereas leaving your vehicle on the road is considered riskier.

5. Your Occupation and How Often you Drive

Infographic of a man looking into auto insurance

When shopping for an insurance policy, your provider will likely ask how many miles you drive annually. Certain occupations may require you to spend more time on the road, drive at night, and possibly in high-risk areas. 

Depending on how often you drive and your occupation, auto insurance companies may consider insuring your car a high risk. If you drive often and over long distances, your chances of being involved in accidents are elevated, attracting higher rates. 

On the other hand, drivers who work from home may pay much less because they are likely to have their car parked in the garage for a week or more. The same applies if you only drive a short distance to work.

6. Your Gender and Marital Status

According to road statistics, female drivers have fewer accidents overall and fewer driver-under-influence accidents. What’s more, auto accidents caused by women are less serious than those caused by men. For these reasons, women tend to pay lower premiums than men holding other factors constant. This is especially true for single individuals.

While gender dramatically influences the cost of auto insurance, things tend to be different for couples. Generally, drivers who are married tend to have fewer accidents. After all, you can expect most married drivers to be experienced and also drive cautiously. For this reason, married drivers may pay less to insure their cars. 

7. Type of Coverage and Amount of your Policy

State authorities often dictate the minimum amount of coverage all drivers must obtain. Besides complying with government requirements, there are many coverage options drivers can choose from. 

The type of coverage you obtain determines your policy’s level of coverage and cost. For example, a comprehensive coverage policy will cost more than one providing minimal coverage.

There are ways to keep your premiums at the lower end no matter the level of cover you obtain. The first trick is always comparing policies and choosing one that best meets your auto insurance needs without straining your budget. The other effective way of lowering your car insurance premiums is picking a higher deductible —Deductible is the amount you pay before your auto insurance provider starts settling your claim.

Note: No matter the type of coverage you obtain and the amount of your policy, always read your policy details before committing to pay.

8. Credit History

Most insurance companies will consider your credit history when calculating your rates. This will help them determine the likelihood of you filing a claim. Typically, drivers with a poor credit history are more likely to file auto insurance claims. 

Your credit-based insurance score will affect the cost of your policy. A credit-based insurance score is a tool similar to the typical credit score used by insurance providers to predict the chance of suffering a loss due to a future claim by a specific car owner. A poor credit-based insurance score will push your rates higher, but your rates may reduce as you improve your credit score. 


An auto insurance policy is a must-have for every driver. Thankfully, many options cater to drivers’ diverse needs and budgets. 

Whether you are buying an insurance policy for the first time or have been on the road for years, understanding the general factors determining policy rates can help you save on premiums. When shopping, remember to check for discounts that you qualify for. You can lower your premiums by picking a higher deductible. You can also reduce your policy rates significantly by providing accurate annual mileage, paying for your insurance in one go, and investing in car security.

Related: What Is PIP Auto Insurance? [And The Top Things 4 Covered]

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