How is your auto insurance policy premium determined?

As car prices have been climbing in recent times it was inevitable that the average auto insurance policy premium would do the same.  The question is how is the policy premium determined, why is there such a wide range in premiums on the same policy coverage from different insurance companies, and, most importantly, how can we use this to our advantage to save the most on our auto insurance policies? 

First of all, insurance companies will all request your social security number and drivers license number when giving you a actual hard quote.  With this information they will look up your driving record for infractions and your credit history.  Recently auto insurers have revealed that credit report information is just as important as driving history records as they indicate levels or risk with astonishingly high accuracy.  A driver with a bad credit history is actually much more likely to have poor driving skills and a higher risk of accidents.  Therefore, drivers with a bad credit score will be charged a higher premium as they are put into a higher risk category.  A bad driving record, obviously, will have a direct impact on your premium and whether some companies will even want to insure you.  This is why it is important to minimize any points that you may have on your license by taking a defensive driving course sponsored by your local DMV or community college.  These classes can reduce several points off your license and even qualify you for a hefty discount on your premium – definitely worth the $40 average price for a one day class.

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Next, the insurance companies will look at your age and sex.  It is fact that young males under the age of 25 have a very high risk as evidenced in annual crash and highway infraction data in all states.  This therefore places them in the highest risk categories and therefore jumps the premium upward.  It is not uncommon to hear of premiums costing several thousands of dollars per year for young male drivers.  This is one of the few areas of business where sexual and age related bias is legally allowed (probably due to the huge clout and power of the insurance companies in Washington).

Next on the level of importance is the type of vehicle.  A 4 cylinder is cheaper than a 6 cylinder and a 8 cylinder as it is seen as a slower vehicle.  It is also important to keep abreast of theft and crime statistics.  Just because a car is not necessarily fast does not mean it won’t have a higher insurance premium.  Take the Honda Accord, it is not a really fast, big engined car, but it is one of the most stolen vehicles in America, so it may have a higher insurance premium or add on than other similar cars or even more aspirated (larger engine) cars.  Car theft is rising at astronomic rates and will play a larger role in premium determination in the next few years.

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Another element is total and optional coverage.  Every state has their own unique minimum requirements.  You and your insurance agent must determine whether that is enough or if you need additional coverage to protect your personal assets in the case of an accident.  Obviously, the higher the levels of coverage, the higher the premiums will be. 

Deductibles can greatly affect your auto insurance premium.  According to Consumer Reports raising your deductible to $1,000 will actually save you in the long run over a lower deductible.  Now, this also means that if anything happens you must shell out the first $1,000 and many people may not be prepared to do this.  This is where a consultation with your auto insurance representative will prove handy.

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Then there are items like driving mileage, state or location (this can play a surprisingly large factor even within the same insurer), student driver, business use, highway versus city driving, car color, etc…  Many of these can bring discounts and are all dependent upon your insurance company.  Some of these programs or discounts may require minimal coverage amounts or addition of non-insured, and underinsured motorist coverage.  This is where there is a lot of swing in the insurance premium prices.  This is why it is best to consult with several auto insurance companies and agents and find out what levels and options best suit you and your families needs and then shop those needs for the best pricing.

Regardless of your age and other factors, it is still a great idea to shop your premiums and coverage to find the best deal on auto insurance.  The average savings by someone who shops their rate and premium is around $800! This article is provided by MDWholesale.com, a website specializing in automotive safety products and information.