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How Car Insurance Premiums Are Determined

Every car owner needs to pay for car insurance premiums. Although it’s not an enjoyable expense, it is a legal requirement in most states to carry liability coverage, which pays for medical and property damage if you cause an accident. Without insurance, you would face a substantial financial loss and could not afford proper health care. Nevertheless, many people have no idea how insurance premiums are determined. If you’re one of them, here are a few simple tips to lower your insurance costs.

When determining your rates, insurers look at your credit history. People with bad credit are statistically more likely to file an insurance claim than those with good credit. Insurers often charge more for people with bad credit because they have a higher likelihood of filing a claim. Unfortunately, this method of calculating your rates is illegal in some states. Regardless of the law in your state, car insurance companies do use your credit history when setting your rates.

You might be wondering if your car is considered “high risk” by insurers. The answer depends on many factors, including your driving history. Insurers will likely increase your premium if you’ve been involved in an accident or had substantial damage to another vehicle. But minor fender-benders don’t matter nearly as much. But you should still be aware of the factors that affect your rates. If you have a history of causing accidents, you’re likely to pay higher insurance premiums than someone without a criminal record.

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