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What determines your car insurance premiums?

Know the factors affecting car insurance premiums, as changes may keep costs down.

Person getting into his car after deciding what his car insurance premiums will be.

You pay one amount for car insurance, your best friend pays another, and your neighbor pays still another amount. What gives? Most insurance companies look at a number of key factors to calculate how much you'll end up paying for your car insurance.

Taking a closer look at these factors that affect your car insurance premiums can clear things up and some of them also come with bonus suggestions for keeping the costs down.

These factors might be used to determine your car insurance premium

  • Your policy and deductibles. It's a given that you’ll choose your car insurance deductible and decide whether to add additional coverage that isn't necessarily required by the laws in your state. The specifics of your policy and deductibles play a major role in your monthly payment.
    • Generally, choosing a higher deductible means a lower monthly payment.
    • Choosing a lower deductible means a higher monthly payment.

Any additional coverage you add typically gives you added insurance protection, depending on the claim, but will also add to your monthly costs.

  • What you drive. Car insurance providers often develop vehicle safety ratings by collecting a large amount of data from customer claims and analyzing industry safety reports, and they offer discounts to auto customers who drive safer vehicles. The opposite can apply for dangerous, flashy rides though.
    • Some insurers increase premiums for cars more susceptible to damage, occupant injury or theft and they lower rates for those that fare better than the norm on those measures.
    • Driving vehicles that rate highly in terms of driver and passenger protection mean discounts on insurance. And while two-door Honda Civics are one of the country's most popular vehicles, their lower-than-average safety ratings and desirability to car thieves make them more expensive to insure.

So before you head down to the dealership, do some research on the car you want to purchase. Does the vehicle that has caught your eye have strong safety ratings? Is this specific model often stolen? Knowing the answers to a few simple questions can go a long way in keeping your rates low.

  • How often, and how far, you drive. People who use their car for business and long-distance commuting normally pay more than those who drive less. The more miles you drive in a year, the higher the chances of a crash — regardless of how safe a driver you are.
    • To help offset how much you drive, consider joining a car or van pool, riding your bike or taking public transportation to work. If you reduce your total annual driving mileage enough, you may lower your premiums.
    • Check with your insurance company about a discount for driving less. Drive Safe and Save™ by State Farm® might save you money when you drive less by using your car’s telematics information.
  • Where you live. Generally, due to higher rates of vandalism, theft and crashes, urban drivers pay more for car insurance than those in small towns or rural areas.
  • Your driving record. Drivers who cause crashes generally must pay more than those who have gone crash-free for several years. If you've been crash-free for a long period of time, don't get complacent. Remain cautious and maintain your good driving habits
And even though you can't rewrite your driving history, having a crash on your record can be an important reminder to always drive with caution and care. As time goes on, the affect of past crashes on your premiums will decrease.
  • Your credit history. Certain credit information can be predictive of future insurance claims. Where applicable, many insurance companies use credit history to help determine the cost of car insurance. Maintaining good credit may have a positive impact on the cost of your car insurance.
  • Your age, sex and marital status. Crash rates are higher for all drivers under age 25, especially single males. Insurance prices in most states reflect these differences. If you're a student, you might be in line for a discount. Most car insurers provide discounts to student-drivers who maintain good grades.

What are ways to help lower car insurance premiums?

  • In some states, younger drivers are also able to take driver safety courses like Steer Clear® by State Farm, that could lower premiums. Overall, it doesn't hurt — and might very well help.
  • You can also check with your insurance company to see if they have a telematics program, like Drive Safe & Save™ from State Farm. These programs record the miles you drive and use that information to help determine your premiums. The less your drive, the more you might save.

Because insurance protection is a contract, any coverage descriptions in this article are general only and are not statements of contract. All coverages are subject to all policy provisions, including applicable endorsements.

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. State Farm makes no guarantees of results from use of this information.

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