Those who drive must purchase auto insurance—it’s the law! If you’ve ever bought a policy, you’ve likely wondered how premiums are calculated. What do insurance companies consider when determining rates? Read on for more details.

What Are Auto Insurance Premiums?

To know how insurance premiums are determined, it’s important to understand what they are. An insurance premium is the money a policyholder pays in return for the coverage they receive. Insurers consider various factors, including your vehicle, location, and driving history, to calculate your auto insurance premium. Drivers can speak with an agent to learn how these factors affect their rates.

Your Vehicle

A vehicle’s make, model, and year all affect the premium an owner pays. For instance, premiums may be lower if a car is statistically less likely to be stolen or involved in an accident. Additionally, driving a vehicle with a solid safety reputation, or one that’s cheaper to fix, may help owners save.

Driving Habits

When calculating insurance premiums, companies also consider the distance a person drives each year. Depending on your habits, you may be at greater risk of an accident—and even the smallest fender-bender will affect your rates.

Usage Patterns

Those who drive their vehicles for work (other than the daily commute) may need commercial insurance coverage. Personal auto insurance policies don’t cover damage, theft, or accidents occurring in commercial vehicles, and businesses typically require higher liability limits than those available through personal policies.

Driving Records

Auto insurance companies look at a person’s driving record when calculating their premium. The better your driving record, the less you’ll pay for coverage. During a review, an insurer may consider:

  • The length of time the person has been licensed.
  • If they’ve ever received a speeding ticket or have been convicted of a driving offense.
  • The number of at-fault accidents the person has caused.

Insurance companies also consider the people who will use a vehicle, along with each person’s driving record, when determining premiums.

Location, Location, Location

It’s just as important in the auto insurance industry as it is in real estate. A person’s location largely determines what they pay for coverage. Insurance costs are usually higher in and near cities simply because accidents, theft, and vandalism are more likely to happen there.

Coverage Level

The government determines the minimum level of coverage a person needs to drive legally. However, additional coverage is available. Coverage levels are a crucial consideration, as they directly affect the cost of insurance. The more insurance coverage a driver has, the more they’ll pay.


To get the most value for their money, drivers should check to see if they are eligible for preferred rates or discounts. Many vehicle owners get insurance discounts for:

  • Belonging to professional associations.
  • Graduating from college.
  • Combining home and auto insurance policies.
  • Driving electric or hybrid vehicles.

Every person’s situation is different, and drivers should check with their insurance companies to see which discounts may apply.

Uncontrollable Factors

Sometimes, factors affecting auto insurance premiums cannot be controlled. For instance, a person’s age and gender may play a role. New government regulations and inflation rate changes can also affect insurance premiums.

Learn and Save

Now that you’ve gained an understanding of how insurance premiums are determined, it’s time to act. Contact a local insurance agent to learn how to save on the coverage you need.

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