Auto insurance can sometimes feel like a complicated puzzle, especially when it comes to understanding why your premium costs what it does. At Midwest Certified Insurance Agency, we believe understanding your coverage is an important part of making confident insurance decisions.
Your auto insurance premium is the amount you pay to keep your policy active. Depending on your policy and carrier, you may pay monthly, semi-annually, or annually.
So, what determines that premium? Insurance companies consider a variety of factors when determining your rate. Some are within your control, while others are simply part of your individual circumstances or broader economic conditions.
Here are 8 common factors that can affect your auto insurance premium:
Factors You Can Control
1. Your Coverage and Deductible Limits
The coverage you choose has a direct impact on your auto insurance premium. Your policy limits, deductibles, and additional coverage options—such as comprehensive, collision, roadside assistance, and rental reimbursement—can all affect what you pay.
Generally, choosing higher coverage limits can result in a higher premium. On the other hand, choosing a higher deductible may lower your premium because you’re agreeing to pay more out of pocket if you have a covered claim.
It’s important to find the right balance between affordable premiums and having enough coverage to adequately protect you.
2. The Vehicle You Drive
The type of vehicle you own can have a significant impact on your insurance premium.
Insurance companies consider factors such as the vehicle’s value, repair costs, safety features, theft rates, and claims history for similar vehicles. A more expensive vehicle may cost more to insure because it can cost more to repair or replace after a covered loss.
Before purchasing a new vehicle, it’s a good idea to check with your insurance agent to see how the vehicle could affect your premium.
3. Your Driving Record
Your driving history is another important factor insurers consider.
A clean driving record generally helps you qualify for better rates, while speeding tickets, accidents, and other violations can cause your premium to increase. Insurance companies use your driving history as an indicator of your likelihood of having a future claim.
For new drivers, premiums may initially be higher because they have less driving experience and haven’t yet established a long-term driving record.
Safe driving over time can help put you in a better position for potential savings.
4. Your Claims History
Your history of insurance claims can also affect your premium.
While one claim doesn’t necessarily mean your rates will increase, a pattern of frequent claims may cause an insurer to view you as a higher risk. The type, frequency, and circumstances surrounding claims can all be considered when an insurance company evaluates your policy.
That’s one reason it’s important to discuss potential claims with your independent insurance agent before making a decision, when appropriate. Your agent can help you understand your options and how a claim could potentially affect your policy.
5. Your Credit-Based Insurance Score
In states where it is permitted, insurance companies may use credit-based insurance information as one factor in determining auto insurance rates. Research used by insurers has found a relationship between certain credit characteristics and the likelihood of filing insurance claims.
This doesn’t mean your credit score alone determines your premium. Rather, it can be one of several factors an insurer considers when evaluating risk.
Insurance regulations vary by state, so it’s important to understand what factors insurers are permitted to use where you live.
6. Where You Live and Keep Your Vehicle
Where your vehicle is primarily garaged can also affect your insurance premium.
Drivers in areas with higher rates of accidents, theft, vandalism, or other losses may pay different rates than drivers in areas where these risks are lower. Your ZIP code, where you park your vehicle, and other characteristics of your location can all play a role.
There may also be steps you can take to help protect your vehicle, such as parking it in a secured garage or using an approved anti-theft device.
Be sure to keep your insurance agent updated if you move, change where you regularly park your vehicle, or have other changes that could affect your policy.
Factors You May Not Be Able to Control
7. Your Age and Driving Experience
Age and driving experience can influence auto insurance rates.
In general, younger and less-experienced drivers tend to have higher premiums because statistics show they are more likely to be involved in accidents. As drivers gain experience and maintain a safe driving record, their rates may improve over time.
This is especially important for teen drivers, who are still developing their skills and gaining experience behind the wheel.
While you can’t control your age, you can help your young driver build good habits by emphasizing safe driving, limiting distractions, and following the rules of the road.
8. Inflation and Rising Repair Costs
You may notice that the cost of everyday goods and services has increased over time—and auto insurance is no exception.
Inflation can affect the cost of vehicle parts, labor, medical care, towing, rental vehicles, and other services associated with auto accidents and insurance claims. Modern vehicles can also contain increasingly sophisticated technology, which may make certain repairs more expensive.
When the cost of settling claims increases, insurance companies may need to adjust premiums to account for those higher costs.
Understanding Your Premium Can Help You Make Better Insurance Decisions
Your auto insurance premium isn’t based on just one factor. It’s the result of many different considerations that help an insurance company evaluate risk and determine an appropriate rate.
While you can’t control everything that affects your premium, you can control some important things—such as the coverage you choose, your deductible, your vehicle, and your driving habits.
If you’re unsure why your premium changed or whether your current coverage still fits your needs, talk with your independent insurance agent. At Midwest Certified Insurance Agency, we’re here to help you understand your coverage, answer your questions, and make sure your insurance keeps up with your life.
Have questions about your auto insurance? Contact Midwest Certified Insurance Agency today. We’re happy to help you make sense of your coverage.
