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How does the insurance company determine my premium?

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Here's the Scoop
  • Insurance companies use your personal details to create a rate that is unique to you
  • Your age and location can affect your rates
  • Drivers in California must have an active insurance policy

If you have ever wondered, “How does a car insurance company determine my premium?” you’re not alone. Many drivers out on the roads today know that they have an active policy but have no idea why their insurance company gave them their current rates.

Now, if you’re on the hunt for California low cost car insurance, you may be asking yourself, “Is there any way that I can determine my premium or car insurance rates don’t eat into all my hard-earned savings?”

While there are quite a few things you can do as a driver to keep your rates low, you’ll first need to learn what an insurance company needs from its applicants in order to know how to calculate an insurance premium formula properly for each and every driver.

Understanding this part of the insurance process is crucial because when you learn how to calculate premiums in general insurance, or at least, get the general idea of how an insurance company does it, you can take control of your insurance future.

If you want to know, Will my driving record determine my premium payments? enter your ZIP code so you can start comparing free insurance quotes and find the coverage you need.

How do insurance companies know how to calculate a premium?

Drivers who have shopped for insurance before know that insurance companies ask for a lot of personal information during the quotes, but which sections of these car insurance quotes determine my premium?

Well, every section that you’re required to fill out helps calculate your final rate. You see, every insurance company on the market knows how to calculate premium percentages because of a process known as the underwriting process.

This process puts every driver who applies for a policy under intense scrutiny in order to determine how high of a risk that individual would be to insure.

Now, you must bear in mind that each insurance company has its own take on the insurance writing process and some insurance companies specialize in providing insurance to high-risk drivers.

If you’re trying to shop for insurance in the most efficient manner possible, you should start shopping online. With your smartphone in hand, you can gain access to a plethora of insurance quotes for free and at any time of day.

Shopping online frees you from the constraints of shopping for insurance during business hours. This means that you can find the best policy for you when you’re with a friend at the park or waiting for the bus.

How to Shop Online for Car Insurance

As convenient as shopping for car insurance online is, you will need to do a little work on your end.

Remember, when you apply for an insurance policy, the insurance company that you’re interested in will require you to provide an accurate picture of yourself and your household. It may not surprise you to learn that you’ll need to share your name and address, but you must also provide:

  • Your marital status
  • Your occupation
  • Your age
  • Your driver’s license number
  • Your age when you first received your license
  • Your car’s VIN
  • Your contact information
  • Your car’s make and model
  • The names of any other drivers in your household

Once you’ve handed those personal details about yourself, you may think that that is all that an insurance company will need to finalize the underwriting process, but that’s not the case. An insurance company will actually use that information to learn even more about you.

The insurance company will look into your driving history as well as your credit score. As you can tell, insurance companies will leave no stone unturned when it comes to evaluating a driver’s risk level.

What factors can influence a driver’s rates?

Now that you know how much information an insurance company needs to find the right rate for you, you may be wondering, “What about me as a driver can directly affect my car insurance rates and determine my premium to be cheap or expensive?”

If you know what details influence your rates, you can use that knowledge to your advantage. For example, how much is your car worth?

More expensive vehicles typically cost more to insure because the insurance company would have to potentially part with a large sum of funds if you needed to get your totaled Porsche replaced.

So if you are trying to save money on your insurance and are about to buy a new vehicle, you may want to consider purchasing a certified pre-owned car instead of a brand new model.

Your rates will also be affected by how much insurance coverage you want to purchase. As you can imagine, a policy that provides full coverage will be more expensive than a liability-only policy.

Your age is quite important to an insurance company too. Older drivers who have more experience being on the road tend to be offered lower rates than younger drivers who are still unsure of themselves while behind the wheel.

You can see in this data table just how drastically insurance rates can fluctuate as you age:

Car Insurance CompanyAverage Rates for a
Married 60-Year-Old Female
Average Rates for a
Married 60-Year-Old Male
Average Rates for a
Married 35-Year-Old Female
Average Rates for a
Married 35-Year-Old Male
Average Rates for a
Single 25-Year-Old Female
Average Rates for a
Single 25-Year-Old Male
Average Rates for a
Single 17-Year-Old Female
Average Rates for a
Single 17-Year-Old Male
United Financial Casualty$1,518.62$1,802.64$1,785.37$1,837.82$2,576.92$2,771.33$4,767.78$5,748.65
Geico$1,680.52$1,680.52$1,786.81$1,787.80$2,566.22$2,624.98$5,433.56$5,529.48
USAA$1,882.10$1,889.89$1,929.46$1,827.74$2,670.51$2,523.86$4,404.58$4,428.83
Allstate$2,126.03$2,148.03$2,921.24$2,923.87$3,742.44$4,115.50$8,098.88$10,188.73
Safeco$2,145.20$2,077.01$2,303.99$2,177.93$2,593.72$2,620.60$5,014.43$5,348.46
Travelers$2,206.26$2,182.92$2,497.45$2,417.86$3,249.64$3,179.78$5,165.60$5,906.73
Farmers$2,451.83$2,451.83$2,715.31$2,715.31$3,218.46$3,585.17$8,667.08$14,189.14
AMCO Insurance$2,863.68$2,699.52$3,272.83$3,124.42$3,904.76$3,858.43$8,318.27$9,186.72
State Farm$2,957.44$2,957.44$3,310.18$3,310.18$3,663.92$3,777.69$6,089.50$7,555.39

Truthfully, nearly every detail about you can influence your rates; however, you can take control of your rates by choosing how much coverage you want, working to maintain a clean driving record, and purchasing reliable, yet inexpensive vehicles.

Can drivers reduce their insurance rates?

Now, if I have my heart set on buying a brand new Audi, is there any way I can obtain affordable car insurance or determine my premiums to be less expensive at the very least?

Driving safely and following traffic laws is usually the best way to secure lower rates; however, there are other steps you can take to ensure that your policy remains affordable.

When you shop online for quotes, make sure that every discount you qualify for has been added to your quote so you can see how much each insurance company you’re interested in working with can save you on your insurance.

Many drivers don’t realize how many discounts they’re actually eligible for so the next time you go shopping for a new policy, refer back to this list of common discounts to make sure you’re not missing out on a chance to save money:

  • Multi-car
  • Low annual mileage
  • Multi-policy
  • Daytime running lights
  • Anti-theft device
  • VIN etching
  • Safe driver
  • Defensive driving course
  • Good student
  • Forward collision warning

These discounts can help drivers get the coverage they need at rates that will work for any budget.

Do drivers in California need to have car insurance?

If you are driving a car in the Golden State, then according to California car insurance laws, you must have an active policy. Drivers caught operating a vehicle without insurance could face severe consequences like paying high fines or your vehicle could even be impounded.

How Premiums Are Determined: The Bottom Line

Through the underwriting process, an insurance company really gets to know you as a driver and assigns you a rate that matches the level of risk that you pose to the company. This is why insurance quotes require you to share a lot of personal details about yourself like your age and address.

But how can I buy car insurance and determine my premiums won’t empty my bank account?

Obeying traffic laws and keeping moving violations to a minimum will not only increase your safety while out on the road but could also reduce your insurance rates so you can get the coverage necessary to protect your ride — no matter what kind of car is it.

Enter your ZIP code to get free quotes from insurance companies near your city today if you find yourself wondering, Will the new car I buy determine my premium to be higher than I can afford?

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