What factors can increase your insurance rate?

24 November 2023
By Joy Pearson
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When it comes to car insurance, we all seek the golden ticket: comprehensive coverage, dependable service, and affordable rates. Yet, understanding the labyrinthine world of insurance premiums can be as complex as a high-speed gearbox. Why do your insurance rates climb, and what can you do about it? In today's post, we will examine the factors that can cause your car insurance rates to accelerate. 

Your driving record is an extensive log of your time on the road and acts as a predictive tool for insurers. Think of it as a scorecard that includes every traffic violation, accident, and insurance claim you've been involved in. Insurers look at the last 3-5 years of your driving history to gauge your risk. More severe incidents, such as collisions resulting in insurance claims, can have a lasting impact on your premiums. It's not just about the big events, though; a historic peppered with minor speeding tickets can also cumulatively contribute to higher insurance costs. 

While not all regions use credit scores to determine insurance rates, where they do, the implications are significant. Your credit score is a measure of your financial reliability. Insurers have found a statistical link between those who manage their finances well and those who manage their driving risks well. A lower credit score might suggest to an insurer that you are going through a tough time financially, which could correlate to higher stress levels and distraction, potentially increasing the likelihood of an accident. 

Age and experience are intertwined in the eyes of insurance providers. Statistics and actuarial data show that very young and very old drivers are more prone to accidents. Teen drivers, despite their best intentions, lack the reflexes and judgement that come with experience, and drivers past a certain age may have declining sense that can lead to higher rates of accidents on the road. As drivers navigate through their mid-twenties to mid-fifties, rates can decrease significantly with a clean driving record, as this age ranges statistically shows the most reliable driving. 

Your ZIP code can say a lot about potential risks to your vehicle. High-density areas with more cars per mile lead to a higher likelihood of accidents and insurance claims. Additionally, urban centers may have higher rates of vandalism, theft, and other risks that can affect comprehensive insurance claims. In rural areas, the risks are different - wildlife collisions or lower access to emergency services can influence rates. Your location also affects regulatory costs, with some states having higher insurance premiums due to legal settings and the cost of claims within the area. 

The make, model, and year of your vehicle can all affect your insurance rates in nuanced ways. Sports cars, which are designed for speed and performance, often come with higher insurance costs. They tend to be driven faster, which can result in more severe accidents, they may be targeted more often by thieves, and they generally cost more to repair. On the other hand, a family sedan with top safety features might cost less to insure. Insurance companies have comprehensive data on the repair costs, safety ratings, and theft rates of virtually every car on the market and adjust your premium accordingly. 

Your chosen coverage level is a significant factor in the cost of your insurance. If you opt for comprehensive coverage with a low deductible, you're asking the insurance company to take on more risk, which increases your premium. On the flip side, carrying only the minimum required insurance may lower your bill but exposes you to significant financial risk if you're involved in a major accident or if your vehicle is damaged in a way that isn't covered by basic liability insurance. 

Insurers will consider not just whether you've made claims in the past, but also the nature and frequency of those claims. A single claim won't necessarily hike up your rates, especially if it's a minor incident. However, multiple claims over a short period can mark you as a high-risk driver. This is because insurers base their interest rates on perceived risk and past claims are seen as indicators of future behaviour. 

The more miles you put on your vehicle each year, the more time you spend on the road, which statistically increases your chances on being involved in an accident. This is why insurers often ask for your annual mileage when calculating premiums. If you drive less than the average for your area of have a short daily commute, you might qualify for a lower rate. Conversely, if you're a road warrior who clocks a significant number of miles, expect to pay more for the privilege. 

By understanding each of these factors in detail, you can better appreciate how insurers assess risk and determine your premium. It also gives you a clearer picture of how you can influence your own insurance rates through careful driving, maintaining good credit, and selecting appropriate coverage for your needs.