Cost of Auto Insurance

auto9There are many factors that influence the price you pay for auto insurance. The average American driver spends about $850 a year. Your premium may be higher or lower, depending on:

1. Your driving record.
The better your record, the lower your premium. If you’ve had accidents or serious traffic violations, you will pay more than if you have a clean driving record. You may also pay more if you haven’t been insured for a number of years.

2. The number of miles you drive each year.
The more miles you drive, the more chance for accidents. If you drive a lower than average number of miles per year, less than 10,000, you will pay less. For instance, some companies will give discounts to policyholders who carpool.

3. Where you live.
Insurance companies look at local trends, such as the number of accidents, car thefts and lawsuits, as well as the cost of medical care and car repair.

4. Your age.
In general, mature drivers have fewer accidents than less experienced drivers, particularly teenagers. So insurers generally charge more if teenagers or young people below age 25 drive your car.

5. The car you drive.
Some cars cost more to insure than others. Variables include the likelihood of theft, the cost of the car, the cost of repairs, and the overall safety record of the car.

6. The amount of coverage.
Of course, like anything else, the more coverage you have, the more you pay. However, you may qualify for discounts.

Credit scores are based on an analysis of an individual’s credit history. These scores are used for many purposes such as securing a loan, finding a place to live, getting a telephone and buying insurance. Insurers often generate a numerical ranking based on a person’s credit history, known as an “insurance score,” when underwriting and setting the rates for insurance policies. Actuarial studies show that how a person manages his or her financial affairs, which is what an insurance score indicates, is a good predictor of insurance claims. Insurance scores are used to help insurers differentiate between lower and higher insurance risks and thus charge a premium equal to the risk they are assuming. Statistically, people who have a poor insurance score are more likely to file a claim.

As a result, establishing a solid credit history can cut your insurance costs. To protect your credit standing, pay your bills on time, don’t obtain more credit than you need, and keep the balances on your credit cards as low as possible—ideally, try to pay off the bill in full each month. Also, check your credit record regularly, and request that any errors be corrected immediately so that your record remains accurate.

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies—Equifax, Experian, and TransUnion—to provide you with a free copy of your credit report, at your request, once every 12 months. For more information, go to the Federal Trade Commission’s Web site on credit.

Free annual credit reports can be ordered from

Your agent will ask you what make and model cars you own, roughly how many miles you drive each year, and what kind of liability coverage you will need. The agent will also want to know how many people drive the cars, how old the drivers are, where you live, and driving records of each household member.

The agent will then ask more detailed questions about your cars, such as their Vehicle Identification Numbers (VIN), whether they have passive restraint systems or air bags, anti-lock brakes or anti-theft devices. If you already have another insurance policy with the company for home or life insurance, you might receive a discount on your auto policy. You should also mention if you or other drivers in your household have completed safe-driving courses and if student drivers in your home are getting good grades—both of these may qualify you for discounts on your auto policy.

Once the agent has assembled all of the information, he or she will quote you a premium. The premium will depend on all the factors above and on the deductibles you choose.

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