4 Important Things To Know About How Car Insurance Premium Rates Work

Posted on: 10 December 2020


Numerous factors impact your car insurance premium rate. It is important to understand all the factors that impact your car insurance rates so that you can adequately plan for the cost of your car insurance. 

#1: Each Company Has Their Rating System

First, it is important to understand that each company has its own rating system. Each insurance company has its underwriting process to determine the applicant's risk and determine its premium rate.

Each company uses its underwriting process and emphasizes different elements of information used to determine your risk level. Your risk level is associated with a rating level, which is how much the insurance company thinks it will cost to provide you with insurance.

#2: Different Rating Levels

Your risk level from the underwriting process is associated with a rating level, which is how much the insurance company believes they need to charge you to balance the financial risk of providing you with insurance.

Often, claim frequency for others at your rating level determines your premium cost. The claim rates from one insurance company to another can vary greatly, and thus, so will how risky it is to provide insurance to someone with the same factors. For one insurance company, your premium maybe $600, but it could be $800 for another insurance company, based on the different financial factors assigned to their assessment of providing you with insurance.

#3: Collection of Factors That Impact Your Rating

Third, insurance companies collect a variety of information to determine your risk level. Some of these factors are under your control, and other factors are not under your control as much.

For example, your age, sex, geographic territory, and marital status can all impact your insurance rates and risk factor. These are factors that you don't have a lot of control over. Other factors, such as your driving record, prior insurance coverage history, and the type of vehicle you drive, are factors that you have control over, which can greatly impact your insurance rates. 

#4: State Laws Impact Insurance Rates

You may find if you move to a new state, that your insurance rates are different. Part of that is because you are living in a new geographical area, which has its own risk assessment.

Another reason is that different states have different rules about factors that insurance companies can take into account. For example, in some states, insurance companies are banned from increasing someone's rates because they have had a lapse in coverage. Insurance companies can't take one's credit rating into account in some states, and in other states, that is perfectly acceptable.

When it comes to insurance rates, various factors inside and outside of your control determine your risk rating level and your premium insurance rates. Your insurance rates will vary from one insurance company to the next, which is why it is best to shop around for your insurance.

For more information, contact an insurance agency.