How an Auto Insurance Rate is Calculated

Do you know how an auto insurance rate is calculated? Insurance companies look at a number of factors when determining how much to charge policyholders. The exact formula varies, depending on the company involved, and is a well-kept secret.

Insurance providers gather information about an applicant to determine the level of risk that he or she presents for coverage purposes. The higher the risk, the more that driver will pay for his or her coverage. To make this determination, the insurance company will pull the applicant’s driving record to discover whether he or she has been involved in any accidents or accumulated moving violations over the past few years.

The insurance company will also look at the make and model of the vehicle when setting rates. Some cars cost more to cover due to repair costs or the fact that they are likely to be targeted by thieves. Customers who drive sports cars will pay more for their coverage because these types of vehicles are meant to be driven fast. SUV owners also pay more for their insurance because of the increased likelihood that they will tip over in a collision.

Location also matters when auto insurance rates are being set. Policyholders who live in urban areas where there are a lot of cars on the road will likely pay more for their coverage than those who live in rural areas. More cars on the road means a higher likelihood of an accident occurring, which means paying more for coverage.