How Is the Cost of Car Insurance Determined?

Figure of car between two hands

Car insurance can be a big budget item, but it doesn’t have to be. Knowing how your premium is calculated can help you make better decisions about what kind of car to buy, how to manage your credit, and even where to live. Of course, there are some factors you can’t control, but knowing how to control the ones you can will help lower your premiums.

How Car Insurance Premiums are Calculated:

What You Drive

The type of car you drive can be a big factor in determining your premiums. Cars are ranked on safety features and discounts are offered for cars that are consider safer to drive. Features like extra airbags, anti-lock brakes, and anti-theft devices are a plus in calculated your premium.

On the flip side, flashy cars that are more susceptible to injury, damage, or theft will increase your premium. Do your research before buying a car. Check the safety ratings and find out how frequently that model is stolen. You can always ask your insurance company for quotes on a few different cars to help you make up your mind.

Your Policy and Deductibles

Lower deductibles and add-on coverages will increase your premiums. Choosing a higher deductible will help lower your premium, just make sure that you can cover your deductible if there’s a problem.

Consider all options and how much you need each one before adding it. Also consider bundling your insurance. Having your home and auto insurance together will lower your premiums for both.

How Far and How Often You Drive

If you work from home and don’t need your car very often, your premium will be less expensive than if you work in a big city 20 miles from home and fight traffic both ways. The more miles you add to your odometer every year, the more likely you are to have an accident which equates to higher premiums.

Consider joining a ride share or taking public transportation. Even if you only commute that way a few days a week, it will lower your premium.

Where You Live

If you live downtown or an area with a high crime rate, your premium will be higher than if you live in a small town or suburb. Moving out of the city may mean driving more miles, but your rate could still be lower if you’re in a low crime area.

Your Credit History

Some factors of your credit history can predict your level of responsibility and possible future claims. Maintaining a strong credit rating can be beneficial to your insurance premium.

Driving Record

Your history of accidents and claims over the last several years can determine if you’re a good risk or not. Those with crash-free driving records for at least 3 years are more likely to have a lower premium than those who have had even one accident or claim.

Your previous insurance record is a factor too. If you have gaps in your insurance coverage, you are a higher risk for non-payment of premiums so an insurance company will charge you more.

Your Stats

Your age, sex, and marital status can play a part in deciding your premium. Drivers under 25 are more likely to have accidents, especially single males. People who are married are seen as more reliable and safer drivers than those who are single.

While some factors are out of your control, choosing a car based on safety ratings, living in a safer area, raising your deductible, managing your credit, and driving your car less frequently can all play a significant part in lower your car insurance premiums.

Looking for more tips and ideas to reduce the cost of car insurance? Check out our Ultimate Guide to Saving on Car Insurance!

Tagged in Insurance, Cars and car loans

Emilie writes about overcoming debt, while balancing trying to eat healthy, stay fit, and have a little fun along the way. You can find more of her work at

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.