While the variables insurance companies consider when pricing policies are fairly standard across the industry, each insurer uses its own formula for assessing risk and setting rates based on these variables. That's why the price of a policy can differ by hundreds or thousands of dollars among carriers -- and why it’s wise to compare insurance companies.
Consumer research firm J.D. Power, however, suggests most drivers don’t shop their policies as often as they should. The J.D. Power 2016 U.S. Insurance Shopping Study finds that fewer drivers are shopping for a new insurer, with 33 shops per 100 policies in 2016, compared with 39 in 2015. Among those who are shopping, only 30 percent actually switch. Those who make the move, however, are saving an average of $356 on their annual premiums.
The study indicates that most drivers could be paying too much for their car insurance. When you do decide to shop for a new policy, know what main factors insurers use to set your rates. Here are 10 to be aware of:
1. Address
Where you live (and park your car) will have a direct impact on your insurance premium. Of the all the factors that affect car insurance rates, location is chief among them. Insurers probably know more about your neighborhood than you do. They study crime rates, neighborhood densities, the number and severity of claims made annually and even the weather patterns to assess the risk you present. Find out how much you can expect to pay by entering your ZIP code into the average car insurance rates tool below. You'll see the highest and lowest rate for your neighborhood fielded from six insurers, which shows how much you can save by comparison shopping, as well as the average annual rate.
2. The types of car insurance and how much coverage you need.
While shopping for car insurance can be boring, almost all experts list shopping your coverage online as the No. 1 way to lower your premium.
Insurers rate risk differently, so there can be huge differences in premium quotes, which is why experts recommend getting quotes from as many insurers as possible, making your computer the go-to tool for lowering your premium. Your computer can shop a large number of insurers quickly, easily and at a time that is convenient for you.
Penny Gusner, consumer analyst with CarInsurance.com, recommends shopping your premium at least once a year. "But before each renewal period (every six months) is preferred to make certain that you always have the cheapest insurance premium."
Shopping is especially important if a ticket or accident falls off your record. "This will make you more appealing to more insurers," says Gusner. Life changes are another reason to shop around. Getting married, adding a driver or moving to a new neighborhood could result in a lower premium.
Before you fire up your computer and start gathering quotes, you should determine your ideal policy limits. Minimum liability insurance limits vary by state, but usually are not nearly enough to fully protect you.
Gusner recommends carrying at least 100/300/50 in liability coverage, which translates into $100,000 per person and $300,000 per accident for bodily liability and $50,000 for property damage liability. That's for the injuries and damage other people suffer if you cause an accident.
You will also need collision and comprehensive insurance if you want your car repaired after it is hit by another vehicle or damaged from fire, vandalism, striking an animal or natural events, like hail storms. Comprehensive insurance also reimburses you for the vehicle's value, minus your deductible, if the car is stolen.
Let's not forget the deductible. "While $500 is a common choice, you can save money if you go with a higher deductible, such as $1,000," advises Gusner.
The deductible applies to collision and comprehensive claims.
To give you an idea of what you can expect to pay, here's a comparison of the average yearly cost of the following coverage levels, by state:
- Minimum liability
- 50/100/50 liability
- 100/300/100 with $1,000, $500 and $250 deductible on comprehensive and collision
| State | Liability Only - State Minimum | 50/100/50 BI/PD | Full Coverage $1,000 deductible | Full Coverage $500 deductible | Full Coverage $250 deductible |
|---|---|---|---|---|---|
| Alaska | $426 | $434 | $1,350 | $1,533 | $1,677 |
| Alabama | $638 | $695 | $1,772 | $2,003 | $2,194 |
| Arkansas | $616 | $678 | $1,717 | $1,921 | $2,089 |
| Arizona | $600 | $696 | $1,467 | $1,635 | $1,782 |
| California | $723 | $911 | $2,268 | $2,574 | $2,771 |
| Colorado | $646 | $725 | $1,598 | $1,783 | $1,938 |
| Connecticut | $1,097 | $1,278 | $2,270 | $2,424 | $2,555 |
| DC | $1,054 | $1,139 | $2,209 | $2,531 | $2,797 |
| Delaware | $1,520 | $1,553 | $2,528 | $2,816 | $3,021 |
| Florida | $1,058 | $1,372 | $2,410 | $2,548 | $2,680 |
| Georgia | $743 | $804 | $1,823 | $1,988 | $2,156 |
| Hawaii | $386 | $422 | $980 | $1,095 | $1,187 |
| Iowa | $403 | $451 | $1,177 | $1,347 | $1,539 |
| Idaho | $546 | $601 | $1,369 | $1,514 | $1,667 |
| Illinois | $543 | $602 | $1,307 | $1,499 | $1,649 |
| Indiana | $633 | $691 | $1,498 | $1,711 | $1,912 |
| Kansas | $526 | $581 | $1,372 | $1,603 | $1,783 |
| Kentucky | $607 | $663 | $1,641 | $1,814 | $1,937 |
| Louisiana | $909 | $1,143 | $2,626 | $2,819 | $2,988 |
| Massachusetts | $866 | $996 | $1,678 | $1,950 | $2,088 |
| Maryland | $958 | $1,023 | $1,795 | $2,003 | $2,163 |
| Maine | $513 | $519 | $1,192 | $1,367 | $1,524 |
| Michigan | $2,446 | $2,145 | $3,208 | $3,535 | $3,819 |
| Minnesota | $864 | $868 | $1,574 | $1,784 | $1,962 |
| Missouri | $506 | $576 | $1,355 | $1,534 | $1,708 |
| Mississippi | $639 | $701 | $1,684 | $1,856 | $1,995 |
| Montana | $467 | $502 | $1,698 | $1,987 | $2,189 |
| North Carolina | $385 | $426 | $918 | $979 | $1,030 |
| North Dakota | $512 | $527 | $1,475 | $1,793 | $2,053 |
| Nebraska | $472 | $508 | $1,269 | $1,480 | $1,659 |
| New Hampshire | $587 | $629 | $1,331 | $1,514 | $1,656 |
| New Jersey | $1,086 | $1,462 | $2,377 | $2,550 | $2,735 |
| New Mexico | $612 | $652 | $1,513 | $1,675 | $1,809 |
| Nevada | $641 | $786 | $1,636 | $1,770 | $1,891 |
| New York | $891 | $973 | $1,725 | $1,923 | $2,095 |
| Ohio | $579 | $602 | $1,235 | $1,392 | $1,524 |
| Oklahoma | $712 | $805 | $2,182 | $2,476 | $2,717 |
| Oregon | $1,007 | $1,072 | $1,697 | $1,855 | $1,989 |
| Pennsylvania | $560 | $626 | $1,427 | $1,614 | $1,772 |
| Rhode Island | $1,026 | $1,113 | $2,014 | $2,226 | $2,417 |
| South Carolina | $654 | $717 | $1,572 | $1,741 | $1,859 |
| South Dakota | $431 | $467 | $1,309 | $1,550 | $1,766 |
| Tennessee | $656 | $717 | $1,625 | $1,810 | $1,949 |
| Texas | $783 | $818 | $1,983 | $2,182 | $2,317 |
| Utah | $629 | $685 | $1,359 | $1,485 | $1,610 |
| Virginia | $536 | $600 | $1,275 | $1,418 | $1,541 |
| Vermont | $487 | $541 | $1,315 | $1,470 | $1,591 |
| Washington | $671 | $713 | $1,516 | $1,651 | $1,773 |
| Wisconsin | $578 | $653 | $1,649 | $1,874 | $2,123 |
| West Virginia | $669 | $773 | $1,633 | $1,886 | $2,072 |
| Wyoming | $410 | $429 | $1,345 | $1,587 | $1,792 |
*Methodology: The table shows the average annual rate for a 2015 Honda Accord LX culled from 10 ZIP codes in the state from the following carriers, in no particular order: Progressive, Allstate, State Farm, Nationwide, GEICO and Farmers. Data was provided for Insurance.com by Quadrant Information Services. New Hampshire doesn’t require drivers to have car insurance, but most drivers do, and we’ve listed what is mandated if you choose to carry coverage.
3. Credit score
According to research firm Conning & Co, roughly 92 percent of insurers use your credit information as a factor to determine rates, so a low credit-based insurance score will raise your premium (unless you live in California, Hawaii or Massachusetts, which don't allow the practice). It all goes back to risk. Studies show that people with bad credit tend to file more and higher claims.
In states where a credit-based insurance score is allowed to influence rates, the impact of bad credit can significantly hike your policy price. CarInsurance.com commissioned Quadrant Information Services to compare full-coverage rates for drivers with average or better credit, fair credit and poor credit.
Nationwide, the average difference in rates between good credit and fair was 17 percent. The difference between good credit and poor credit was 67 percent.
Here are some examples, showing a $714 increase from excellent to poor credit status for State Farm, and $370 for Allstate :
State Farm:
- Excellent credit: $563
- Average credit: $755
- Poor credit: $1,277
Allstate:
- Excellent credit: $948
- Average credit: $1,078
- Poor credit: $1,318
4. Age
Your age will impact your premium, especially if you are young or in your twilight years. Statistics from the Insurance Institute for Highway Safety (IIHS) show that the fatal crash rate for teen drivers is three times those of drivers over the age of 20.
On the other end of the spectrum, older drivers tend to be involved in more accidents. CDC stats show that fatal crash rates increase around 75 and skyrocket at age 80.
5. Marital status
Statistics show that married drivers are involved in fewer accidents and are issued fewer tickets than single people. In some cases, insurers will even drop the rates of drivers under 25 if they tie the knot. Combining or bundling policies with your new spouse can also send your premium down.
6. Type of vehicle
The type of car you drive will have an impact on your premium quote. Insurers will take into account the car model's claims record. As a result, if a lot of younger drivers who have accidents drive the same model as you, you may pay a higher rate. Have your car's Vehicle Identification Number (VIN) handy when applying for new coverage.
7. Vehicle use
How you use your car will impact your premium. If you use your vehicle for commercial purposes, even something as minor as a part-time pizza delivery job, you need to disclose this. Failure to do so could result in a denied claim if you are in an accident while on a delivery.
If you have a long commute or drive frequently after midnight expect your rate to be a bit higher.
8. Licensed drivers
List all licensed drivers living in your household, regardless of whether they drive your vehicle. Omitting a driver could result in a denied claim or a cancellation if the unlisted driver is involved in an accident. As soon as your child has a valid driver's license, add the teen to your policy.
In general, the two exceptions to the "list all licensed drivers in your household" rule are an adult child who lives with you but has his own vehicle and a parent who lives with you but has his or her own car.
9. Driving record
Your driving record indicates how risky you are as a driver. A driving record packed with tickets or accidents is a red flag for any insurer.
Insurers will check your driving record when you apply for coverage, and again at renewal time. Expect violations to raise your rates for three to five years.
While it may be tempting to fudge the facts on your application, that is a bad idea. "If you give incorrect information on the quoting form, and the insurance company finds the error, it will recalculate your premium or may decide to rescind its policy offer," warns Gusner.
10. Claims history as well as prior insurance history
Accidents and tickets aren't the only things that will ding your insurance rates; all claims can potentially have an effect on your rates. While at-fault claims will result in a surcharge (higher rates) and comprehensive claims generally will not, the number of claims you make matters.
If you have made a number of claims, of any kind, on your policy in a short period of time, such as three claims in three years, expect your car insurance rate quotes to be higher. A large number of claims will peg you as a higher risk and raise your premiums for at least two to three years.
Proof of insurance verification, which shows that you had insurance coverage before applying for a new policy, is something every insurer will ask you to provide. In most states driving without car insurance is illegal so a lapse, or a number of lapses in your coverage, will be a concern.