How Rates Work For Car Insurance

By Matthew James

Many factors will determine what premium rate you see when you ask for quotes. A common misconception is that rates are set by law and cannot be changed. Although the methods each auto insurance company uses when setting rates are regulated by state laws, the rates themselves are not set by the state. This fact means that there will be different rates for each company. Once you understand more, you'll see why comparing rates from different companies can save you alot of money.

How insurance rates are set:

Let's say you submit your application to an insurance company of your choosing. They will first organize you according to the information in your application, including a few other sources. Once they have determined your customized group, the pricing information for that group is referenced. If you have any discounts, then they are subtracted from the total, and then they return a quote to you. These companies use software that is pretty complex based on various factors and algorithms of risk and liability. They use the information on your application or from an agent to plug into the software.

Where do all these premiums go?

-70% goes to claims.

-4 percent is the insurance companies profit.

-26% goes to other expenses.

Why are their different rates for insurance companies?

Because each company has different small groups and different prices for those groups, rates can vary considerably from one car insurance company to the next. Each company has its own set of claim payments and expenses, and they must set their rates based on that information.

What info affects your premium?

1.Who you are:

-Age

-Are you male or female?

-Are you married?

-Your Area Code

-Occupation

-Credit History

-How long have you been driving?

2.What type of vehicle do you drive?

-The year

-Make

-The model

-How many miles you drive per year?

-Safety features

-How much does the car cost?

3.Credentials

-Traffic tickets

-3.0 average in school

-Let policy lapse

-Ever filed any claims before?

-Did you ever file for bankruptcy?

-Any defensive driving courses?

-Have you ever had an accident?

4.How much coverage:

-Medical payments

-Do you want rental reimbursement?

-Roadside assistance

-Property damage or bodily injury?

-Comprehensive and collision - 16931

About the Author:

Matt has been an insurance agent for 15 years and writes for EquotePro.com as a hobby. You can read his other articles or get auto insurance quotes with no obligation.