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As drivers and motorists we tend to look at insurance policies as commodities, and rightly so. Hence, we tend not to have loyalty to any particular insurance company as we mainly shop around to find the best possible rate. Most consumers don’t know what factors influence their car insurance rates. This article is intended to bridge that gap. Knowing what factors influence rates is the first step in determining how to lower your insurance rates going forward.

In no particular order, the following are factors in your car insurance rating:

1. Type of vehicle: Most consumers believe that the higher the value of the car, the higher the rate of insurance. On the surface, this sounds logical. Insurance companies have to pay to repair cars when they are involved in a claim, have had a collision, have been stolen, etc. The value of the car does have some bearing on the rates. But the main factor is the safety of the vehicle. Safer cars cost less to insure. Insurers pay for accident benefits when an insured is harmed in an accident. Think about this: It costs a lot more to repair a human being than it does to repair physical damage on a vehicle.

2. Your location: where you live and where your vehicle is parked affects your rates. This is because different regions have different loss frequencies. Possible factors could include congestion, weather conditions, theft frequencies, and access to loss mitigation services. So if you’re shopping for a car insurance quote and can’t believe that your uncle in Iowa is paying half as much for the exact same car, it’s probably because you live in Los Angeles (or Toronto, or Chicago, or New York, Etc.) and the potential for loss is a lot higher in urban areas.

3. The amount and type of convictions on your record: It still amazes me how some people don’t understand why tickets affect your insurance rating. For obvious reasons, people that get tickets for offences such as impaired driving, careless driving, vehicular manslaughter, running red lights, and speeding are obviously not paying attention to the rules of the road and have a greater chance of causing an accident. And, yes, the insurance company pays for that; so, you will have to pay a higher rate to compensate for the higher risk. One of my favorite questions is, “How does a seatbelt ticket affect the insurance company?” People don’t understand why a seatbelt ticket would cause their insurance rates to increase. Remember point #1 where I stated that it costs more to fix a human being than it does to fix a car? If you don’t wear a seatbelt, you have a far greater chance of being hurt if you are involved in an accident.

4. Number of claims on your record: The more claims you have had in the past the higher the probability that you will have claims in the future. Does this need any further explanation? I think not.

5. Your age: Statistics show that younger drivers are involved in more accidents. So, unfortunately, new drivers have bad experiences with insurance companies from the get go. Insurance is odd in that the people with the means and ability to pay often have the lowest rates, whereas the drivers without a high discretionary income end up being charged more.

6. Credit Rating: This is a relatively modern rating factor that is, lately, being utilized by more and more insurance companies and it is becoming the most accurate predictor of future claims. The better a person’s credit rating the lower the potential of future claims. While on the surface this may seem discriminatory, it is not. To explain the reasoning, someone with a low credit rating most likely has a low income and has money problems. So, this person would be more likely to make a fraudulent claim or artificially increase the severity of a legitimate claim to get insurance money. Fraudulent claims cost everybody money, so why pass along the cost to honest people? Insurance companies figure it is better to hit this demographic with higher rates than to increase everybody’s rates, which would include honest drivers.

I hope that you, now, better understand how your car insurance rate is determined. Having this information will help you the next time you call your insurance broker or agent to renew your insurance policy or to request an auto insurance quote.