You just bought a new car, and now you’re searching for affordable car insurance. Once an insurance company is supplied with such information as the make and model of your car, your age, your address, etc., they provide a quote for your premium. But how exactly do they calculate that number? Read on to learn how insurance companies determine these rates.
Different companies, different rates. Many drivers mistakenly believe that insurance rates are set by the state. Although Auto insurance companies must follow certain laws when calculating rates, the rates themselves are not set by law. When you ask for a quote, the insurance company considers many different factors as they figure out your rate. However, because each insurance company uses their own unique calculation method, you could receive widely varying rates from different insurance providers.
Crunching the numbers. Depending on the laws in your state, insurance companies typically determine your rate based on some or all of the following factors:
- 1. The year, make, model, body type, engine size, and safety features of your car
- 2. Your age and gender
- 3. Your marital status
- 4. Your driving record
- 5. Your usage of the car (such as if you are using the car for work, pleasure, or as a collectible)
- 6. Occupation
- 7. How many drivers will be using the car and their ages
- 8. How many vehicles you own
- 9. What kind of coverage limits you want
- 10. Where you live
- 11. Your weekly, monthly or annual mileage
Generally, this information is entered into a computerized system that automatically places you into a price group based on these parameters. The insurance company then subtracts any discounts for which you qualify from your group’s rate and you’re left with the resulting quote.
Where your money goes. If you think the quote is fair and decide to purchase a policy, you’ll start paying a monthly insurance premium. But what exactly does your monthly premium cover? Here’s a typical insurance premium breakdown:
- – About 70% of your premium pays for losses and loss expenses
- – About 26% of your premium goes toward marketing, commissions, and administrative costs
- – About 4% of your premium contributes to the insurance company’s profits
You better shop around. Every insurance company has differing sets of claim payments and expenses, and they set rates for each “price group” accordingly. That’s why you’ll likely receive widely varying quotes. This is why it’s so important to take the time to shop around and find the best rate. Plus, although insurance companies are prohibited by law from calculating rates based on race and religion, they are allowed to consider your age, gender, and marital status. However, each company places emphasis on different factors. For example, while one insurance company might place more weight on a driver’s gender, another company might think their driving record is more important. But how do you manage all of this information?
That’s where we come in. As your insurance agency, we provide you with the expertise and specific industry knowledge to guide you through the process. We work as an advocate on your behalf to shop your needs to the companies best suited to fulfill your unique Auto insurance needs – and at the best rates. In addition, we also consider which company offers the type of coverage you desire. Let us do the homework and find the best fit for your unique Auto insurance needs. Call our office today!