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How are car insurance premiums calculated?

In short, an insurance company looks at your complete driving profile to determine what kind of client you will be for them. Your driving profile is made up of several factors. Some you can control, like making sure you have a good driving record or driving a car that is less expensive to insure. But for everything else, it can get a little complicated. So think of this as your guide to all the insurance questions you meant to ask but never got around to.

In this article, we'll break down insurance by:

  1. Your driving profile
  2. How you are
  3. Your location
  4. Your insurance history
  5. Your car
  6. How we can help you

What is my driving profile?

The amount you'll pay for insurance is calculated by a variety of factors about you and your vehicle. These factors, which include where you live, age, gender, credit score, your insurance and driving background, and what you drive are the bedrock of your insurance premium. The better you appear to an insurance company (i.e., the less risky of a customer you appear) the lower your premium will be. For more information on what impacts your rates, see our intensive guide here.

How does who you are impact your rate?

To an insurance company, who you are is determined by your age, gender, credit score, marital and homeowner status, and of course what you're driving. This information, correspondingly, will determine what kind of client you will be to your insurance company. Meaning, they use this information to determine what you will pay for your auto insurance - aka your premium. So, if you're a driver with a low credit score (below 524) or have a lengthy driving record, you can expect your premium to be higher for what an insurance company views as a risky client.

What about your location?

Although you might not know it, your insurance is regulated by your state's covered but calculated based on the zip code you reside in. If your state requires your base minimum coverage to be high, you will be required to match and sometimes exceed what your state requires. This is why, for example, insurance in Michigan is so expensive. Because Michigan is a no-fault state with high PIP insurance requirements, residents are forced to pay more for auto insurance than other states. Looking at a more granular zip code level, if there are a lot of bad drivers in your area, your rate could be higher than state average because of what your insurance company sees as an increased probability of payout.

What about your insurance record?

Insurance companies not only want to see that you have an insurance history, but that you have a good history. Unless you’re a brand new driver, a lack of an insurance history is a red flag to an insurance company. Moreover, it's also the same if you have a long history of only having the bare minimum of coverage. This is because insurance companies see drivers with a long history of high insurance limits as financially responsible and therefore a lower risk than a driver without a positive insurance history.

Your car and car insurance?

To put it simply, your insurance company assumes a portion of financial responsibility for your vehicle when you sign your policy. On average, vehicles with high MSRP (manufacturer's suggested retail price) such as Mercedes-Benz models or BMWs are more expensive to insure than something like a CR-V. This is due to their foreign-made, more expensive parts that are capable of higher performances. So, if you own a high-performance vehicle, you should expect your premium to be reflective of the added potential expense to an insurance company.

How The Zebra can help you

Here at The Zebra, we look at everything (and more finer details) in order to find you the very best auto insurance for you. We look because car insurance companies are looking too. We use real estimates with our car insurance calculator so you can shop over 200 different companies at once. Our goal is to match you with the best insurance coverage in your area, coverage that reflects both your financial needs and expectations.

A number of comparisons we offer, more than 24x your average insurance agent, comes in handy if you’re in the mood for some savings—which we hope you are! We've found that the more insurance companies you visit and receive rates with, the more savings and better coverage you’ll be able to find. So, if you want to find the best coverage for your money, look no further than The Zebra's car insurance calculator. So, let us help you out—by using our insurance calculator, you can compare hundreds of different companies at once in order to make sure you're getting the best rate. And you don't even have to leave your couch.

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