When you purchase auto insurance, you enter into a contract between you and the insurance company. You agree to pay the insurance premium when it’s due, and the insurer agrees to pay for specified expenses when you suffer a covered loss. For instance, if you have collision coverage, your policy might cover body repairs minus your deductible following a crash. Show
Young drivers usually pay more for car insurance than more-experienced drivers. Often, rates decrease by the time they reach age 25. But age is not the only factor auto insurance providers use when setting drivers’ insurance rates. Even before reaching 25, young drivers can employ other methods to reduce their rates, such as taking a driver training course and maintaining good academic grades. Knowing what’s available to you can help you lessen your auto insurance bill. Key Takeaways
The Age When Car Insurance Prices Go DownUnderwriting and car insurance pricing procedures vary by insurer. Providers determine a driver’s rate by how likely they are to file a claim based on a number of factors. Drivers who pose a high risk of filing a claim pay higher premiums, while drivers who pose a low risk enjoy lower rates. Risk CategoriesTypically, carriers place policyholders in one of three risk categories:
Drivers Under 25Generally, male drivers under age 25 pay the highest rates, however, drivers who maintain good driving records can experience premium decreases between ages 17 and 29. Insurers often eliminate youthful driver surcharges when a policyholder turns 25. Age is not the only factor insurance companies use when determining your auto insurance rate. For example, if you maintain a good driving record up to age 25 but have poor credit, you may continue to pay high insurance premiums. NoteYoung drivers who still live with their parents and do not own their own vehicles can remain on a parent’s car insurance policy and typically pay lower premiums than if they buy their own coverage. How Insurance Companies Determine RatesInsurers determine a driver’s risk category during the underwriting process. The process uses algorithms, which analyze your claims history and personal information to determine a rate within your assigned category. Factors used in determining your premium can include your:
Sometimes, providers offer more favorable rates to drivers who enroll in usage-based insurance programs. These programs base rates on your driving habits, such as the time of day you drive, the number of miles you drive, and how well you avoid hard stops. NoteAuto insurance laws vary by state. Most states require drivers to carry liability coverage, and some also require medical payments, uninsured, and underinsured motorist coverages. How To Get a Lower Price on Car InsuranceIf you’re paying high car insurance rates, you can take several steps to reduce costs.
NoteSome rate factors are more difficult to offset. For example, if you live in a city with high auto-theft rates, you’ll typically pay more for auto insurance. Shop Around if Premiums Cost Too MuchShopping around is one of the best ways to reduce your auto insurance rate. Since many insurers offer online quotes, it’s easy to obtain several rate quotes in one sitting. Getting the lowest rate shouldn’t be your only goal; you also need to find all the coverages you need, provided by a reputable and financially stable carrier. For the best results, follow these guidelines:
Frequently Asked Questions (FAQs)How much does car insurance cost on average per month?According to the National Association of Insurance Commissioners, in 2019, U.S. car owners paid an average of $1,096 per year, or $93.33 per month, for car insurance. This average included policies with liability, collision, and comprehensive coverages. However, many factors determine your auto insurance rate, so national averages are not always dependable. What is a deductible in car insurance?Your car insurance policy’s deductible is the amount you must pay from your own funds when filing a claim. Let’s say your policy has a $500 collision deductible. If you have an accident that causes $2,000 in damages, the insurance company will pay up to $1,500 in repair costs and you will be responsible for the remaining $500. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial
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