How is car insurance calculated?
Learn how car insurance is calculated, some common factors that affect car insurance rates and tips that may lower the premium.
Overview: Car insurance rates are calculated by estimating the cost of future claims and establishing prices to provide funding to cover them. Various sources of information are used to determine rates, like accident statistics, vehicle repair and replacement costs, along with personal factors for calculated premium such as age, location and claims history. Understanding what affects car insurance rates may help you identify ways to save money.
Rate vs. premium
Let’s first look at the difference between rate and premium:
- Rate — the price of insurance, set at the group level, based on common factors shared by multiple policyholders, like age or location.
- Premium — the price of insurance, set at the individual level, based on the common factors that apply to the policyholder.
How are car insurance rates calculated?
Rates are calculated by estimating the cost of future claims and establishing a pricing structure that provides funding to cover them. These estimates come from data analysis based on information like accident statistics, vehicle repair and replacement costs, vehicle safety features and driving behaviors. Rates apply to groups of policyholders who share common factors such as age or location.
How are car insurance premiums calculated?
Premiums are calculated by starting with the rate that applies to the individual policyholder based on common factors like age and location and then adjusting it for personal factors like driving history to better reflect the driver and the vehicle being insured. The table below includes the factors most companies use, the reason why they’re used and how they can affect premiums.
What are the factors that affect car insurance premiums?
How can I lower my car insurance premium?
Here are some potential ways to help you save money on your auto insurance:
- Take advantage of discounts — many companies offer discounts for maintaining safe driving habits or bundling auto insurance with another type of policy such as homeowners or renters.
- Consider adjusting deductible amounts — choosing higher deductibles may help lower your premium.
Want more information?
Your local State Farm agent can help explain the different types of coverages and options available to you and help you create a personalized plan that makes the most sense for your situation.
You can get an auto insurance quote now, or give us a few details and a State Farm® agent will reach out to you.
The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third-party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.
This article was drafted with the help of AI and reviewed by State Farm editors.
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