3 factors car insurance companies count for when calculating risk

Cheap Car Insurance | April 13, 2016 | Leave a comment
3 factors car insurance companies count for when calculating risk

The car insurance industry is mainly based on calculating risk. Those auto insurance companies base their own rates on how likely you will be to file a claim in the future. They use a wide range of factors to determine the risk.

Whilst it is almost impossible to acknowledge the precise formula any car insurance carrier uses for calculating risk and determining the premium rates, understanding the common rating factors could help you shop more lucidly for your auto insurance. Also, it could help you get to know how major changes in your own life might impact the premium of your policy. This article will show you how car insurance companies calculate risk.

  1. Driving History

If you have gotten involved in many accidents previously, then those car insurance companies will logically assume that you will be likely to have much more accidents in the upcoming time.

Therefore, they will use your driving record in order to calculate your risk. As normal, they might look at any accident you get involved, any moving violations you have been cited for, if your car license has been revoked or suspended.

The customer presenting a higher perceived risk than other customers will pay higher insurance rates.

So, how to get good rates?

It is said that the best way to obtain good rates is becoming a safe driver. Insurance companies could just see your driving record over the period of 5 previous years, basing on the law of the state.

As usual, car insurance companies will consider demographic characteristics when they calculate the risk accompanied with insuring you. Here they are:

  • In terms of statistics, drivers under 25 and over 65 years old will be more likely to get involved in accidents and pay higher rate.
  • Males tend to be more likely to get into accidents than females and may pay higher premiums.
  • The marriage status of yourself could be used to determine your rates, with married ones at lower risk of accidents than singles.
  • Students tend to be considered more responsible, thereby getting a certain discount for obtaining above a B average.

The other people on your car insurance policy also impact your risk and thus your rates. Those very old or very young drivers and those having poor driving records will increase your insurance rates.

Read more: steps to take before signing a car insurance policy

  1. Your Credit-Based Insurance Score

In the U.S, some states permit auto insurance companies to look at customer’s credit-based insurance score upon determining your own premium or deciding if they should sell you an auto insurance policy.

Those people with low credit scores will be correlated with poor driving records and risky driving behaviors.

It means that if your credit-based insurance score is very low, you may cope with the possibility of being deemed high risk of filing an insurance claim.

Your credit-based insurance score is normally similar to your credit score, yet it does not contain the same factors. In those states where it is allowed, most car insurance companies might look at the factors below to calculate your own score:

  • Debt
  • Payment history
  • The length of your credit history
  • Whether you have applied for new credit lines recently
  • What kind of credit you get, credit card, loans, mortage
  1. Location And Occupation


Your job or occupation also impacts the rates of your care insurance because some specific occupations might be correlated with a higher number of accidents. Those high-risk professions include, yet are not strictly limited to:

  • Lawyers
  • Doctors
  • Business executives

Those occupations with low risk include first responders and teachers.

Read more: 5 tips to choose the best car insurance company

Location & Crime Rates

In addition to occupation, location also plays strongly in your car insurance rates. Those people who drive more will be at higher risk of accidents than those who do not, so auto insurance companies will be likely to request an estimate of your mileage each year when you shop around for car insurance. Your risk of filing a claim increases when:

  • Your neighborhood has significantly heavy traffic
  • The crime rates are high in your location
  • You drive a car which is a popular target for theft.

There you have known some information about how car insurance companies calculate risk. Make sure that you check the prices of car insurance for at least 3 companies before deciding to go for one.

3 factors car insurance companies count for when calculating risk
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