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How do I calculate the insurance premium for my car?

Here's what you should know...
  • Due to car insurance carrier methods, it is impossible for drivers to calculate their own premiums
  • Car insurance companies take into account several factors to determine the price each driver will pay including credit history, miles driven, and claims history
  • Drivers can take steps to decrease the premium that they pay including asking for discounts and keeping a clean driving record

If you have recently purchased a vehicle or are considering switching car insurance companies, you may be a bit nervous about how much your premium will set you back. Using an online car insurance price comparison tool can help you to find the policy that fits your needs at a price you can afford.

Check out our free car insurance quotes tool above after you read this post!

How do I calculate the insurance premium for my car?

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Unfortunately, it is impossible for a driver to calculate what their own insurance premium will be. Car insurance carriers use a variety of factors, calculators, and tools in order to come up with the rate that you will pay. While they provide general information to consumers about how their rates are determined, they do not usually share their own formulas and methods for determining rates.

How is my auto insurance premium determined?

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Auto insurance companies look at many different factors about each driver and their vehicle in order to provide them a premium. All of these factors are based on how much risk the insurance company is taking by insuring the car and the driver. The higher the risk, the higher the premium. These are the common factors auto insurance companies consider to put a price tag on a premium:

Driving Record

Car insurance companies buy into the school of thought that past behavior can predict future behavior. This means if you have a fairly recent history of moving violations or accidents, you are likely to continue with that type of driving behavior and be a higher risk for them to insure. Whereas, drivers with clean driving records will see lower premiums as the car insurance company expects them to continue to be good drivers.

Claims History

Just like your driving record, your claims history also tells the auto insurance carrier how much of a risk you will be. If you have a history of frequent claims with your previous auto insurance carrier, you can expect a higher premium.

Credit History

Many drivers are oblivious to this factor, however, as many as 95 percent of auto insurance companies will pull your credit report, in states where it is allowed, when you apply for a policy with them. This is because they believe that drivers with poor credit history are more likely to file claims on their auto insurance policies.

Location

Your location can impact the price of your auto insurance premium. Certain areas of the country are more prone to car theft and vandalism. Other areas have a higher incidence of auto accidents or even lawsuits surrounding car accidents. If you live in any of these areas you and the other drivers in your community will pay for it in your car insurance premiums.

Miles Driven

It goes without saying that the more miles you drive, the more prone you are to having an accident. This means that drivers who drive more miles annually or even weekly will pay higher premiums.

Type of Vehicle

Car insurance carriers track which types of vehicles are more likely to be stolen, broken into, or vandalized. They also track which ones have the best safety records and safety features. If your vehicle falls into one of these categories your premium could go up or down because of it.

Parking Location

Vehicles that are parked in attached garages tend to be less likely to be stolen or vandalized. If your car is usually parked on the street or in a carport you will likely pay a higher premium in order to account for this increased risk.

Age, Gender, and Marital Status

These are factors we cannot do much to change. Younger drivers tend to pay higher premiums as the insurance companies consider them to be less experienced and a higher risk. Male drivers are more likely to take risks behind the wheel. If you are married, especially if you are a married man, you will pay a smaller premium than someone who is not.

This is because insurance companies see risk-taking behavior drop among married men who have families that count on them.

How can I lower my auto insurance premium?

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In addition to comparison shopping, there are a few other steps that drivers can take to possibly lower their auto insurance premiums. Such as:

Work Toward Better Credit

You cannot change your credit score overnight but you can slowly work towards building better credit. Paying off previous debts and keeping your current credit cards and lines of credit paid on time will help you to earn better car insurance rates over time.

Keep Your Driving Record Clean

Again, working towards this goal won’t instantly give you a lower premium but it is a good way to ensure lower premiums in the future. Drive defensively and follow all traffic laws including all speed limits.

Increase Your Deductibles

For comprehensive and collision coverage, you can choose your deductible. If you have money that you can rely on in the event of an accident, it may be worth it to raise your deductibles in order to pay less overall on your car insurance premiums.

Consider the Vehicle You Own

Talk with your auto insurance carrier about vehicles that may qualify for lower premiums. These usually include vehicles with many safety features or even newer vehicles.

Ask About Discounts

Most, if not all, auto insurance companies have a variety of discounts available to their policy-holders. Sometimes they require that the consumer asks about these instead of just handing them out. Some possible discounts include military or veteran, occupational discounts for nurses or teachers, college student discounts, discounts for taking driver’s education or a defensive driving course, and claims-free discounts.

While you cannot calculate your own premium, you can take steps to reduce it and to understand what factors into the calculation. Purchasing a car insurance policy is necessary for nearly all states. This process can be made easier and less expensive by using an online price comparison tool.

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