How Auto Insurance Companies Set Their Rates

Auto insurance companies use a multitude of factors to determine the rate to charge. While your driving record is important, most companies also put emphasis on how likely you are to file a claim. To help estimate your possible premium, it's important to understand how insurance companies determine the rate. Each company has its own standards and judges the varying factors accordingly.

Industry data gives insurance companies much information to base predictions for claims by customers. Companies use many non-driving factors to determine claim risks. The most common of these include the driver's age, car model, income, credit score, marital status and address. Based on these factors, the insurance company predicts the likelihood of your filing a claim and the monetary amounts the insurance company can expect to pay out.

Your driving history is also an important factor. Past accidents and traffic violations cause you to pay a higher premium, and a clean driving record for a substantial time lowers your rate. Also, most insurance companies offer discounts on premiums if you complete a qualified driver safety course.

Many companies offer “umbrella policies,” or combination policies, and may offer you discounts on your auto insurance if you purchase a different type of policy along with an auto policy. The most common type would be a homeowners policy. A professional insurance agent can be helpful in getting the best rates for the coverage your situation calls for.