How Is Car Insurance Calculated?

Insurance companies calculate car insurance premiums based on the estimated risk associated with a policy. To set your rate, they’ll ask for information about you, your car, your driving history, and your desired policy coverage.

12 factors insurance companies use to set your rates

When you buy an insurance policy, you volunteer certain information to your insurance company, and your insurance company will use that information to set your auto insurance rates.

Our experts have compiled a list of 12 factors that car insurance providers use to come up with car insurance estimates.

1. Driving record

When you request a quote or renew your policy with an auto insurance company, the insurer’s underwriters will look at your Motor Vehicle Report (MVR)—a comprehensive record of your recent or complete driving history.

Providers will add surcharges to your policy if they find any car accidents or traffic violations in the last three to five years, resulting in higher rates as long as the surcharge applies.

Our experts analyzed thousands of car insurance policies purchased by real Jerry drivers to determine how violations on your driving record can impact your average annual rate. Here’s what they found:

Violation	Average monthly rate	Percent increase over average
No violations	$144	Average
One DUI	$272	89%
One careless driving charge	$258	79%
One speeding ticket (all speeds)	$252	75%
One at-fault accident	$194	35%

2. Past coverage and claims

Insurance companies like to work with drivers who have had an auto insurance policy for a long time with few claims and no lapses. This is one of the reasons older drivers tend to pay less for insurance.

Prospective insurers will be able to see your claims history through something called a CLUE report. If you have a recent claim on your insurance—or if you dropped your coverage for a while—expect higher premiums for the next three to five years.

Here are some examples of just how much your monthly full-coverage car insurance rates might increase after a lapse in coverage:

Insurance company	Average coverage cost	Average coverage cost w/ lapse	Total cost increase (%)
AAA	$160	$208	30%
Allstate	$142	$190	34%
Clearcover	$98	$118	20%
Direct Auto	$167	$186	11%
National General	$148	$164	11%
Nationwide	$108	$136	26%
Progressive	$128	$159	24%
Safeco	$118	$145	23%
State Auto	$110	$153	39%
Travelers	$100	$140	40%

3. Age and driving experience

Insurance companies trust experienced drivers with a proven record of safe driving—and they reward that trust with less expensive premiums. Teen drivers, young drivers, and anyone with less than three years of driving experience can expect to pay higher rates due to the higher risk associated with their policy.

Here’s how much car insurance can cost based on your age:

Age group	Minimum liability	Full coverage
Under 18	$275	$681
18–21	$248	$542
22–25	$163	$369
26–34	$123	$274
35–44	$110	$242
45–54	$106	$230
55–64	$100	$213
65 and up	$106	$214

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Learn more: The best cheap car insurance for teens (2024)

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4. Location

Insurers will check risk factors in your ZIP code when setting your rate. High rates of auto theft, vandalism, and traffic incidents will all raise the cost of insurance.

This is why urban drivers tend to pay more for coverage. Drivers in rural areas get into fewer accidents and can typically pay less for the same amount of coverage.

5. Car make, model, and age

Your auto insurance rates depend heavily on your vehicle. In general, newer vehicles with high safety ratings have lower rates, while luxury cars, sports cars, and older vehicles without standard safety features all cost more to insure.

When buying a new car, check NHTSA safety ratings and IIHS loss information to keep your costs low.

The cheapest cars to insure on average are compact crossover SUVs. They typically have the lowest rates thanks to their sturdy build, excellent safety record, and affordable repair parts.

6. Types of coverage and coverage limits

Most drivers need full-coverage car insurance, which includes some amount of property damage liability and bodily injury liability coverage along with collision coverage and comprehensive coverage.

Full coverage is more expensive than a state minimum policy that only includes the coverage required by law. But investing in full coverage is a good idea for anyone who owns a car worth more than about $4,000. Plus, full coverage is required by lenders for financed and leased vehicles.

Here’s what minimum liability and full-coverage insurance policies cost on average from some of the nation’s top insurance companies:

Insurance company	Minimum liability	Full coverage
AAA	$105	$215
Allstate	$85	$198
Bristol West	$158	$361
Clearcover	$66	$130
Founders	$51	$174
Gainsco	$98	$222
MAPFRE	$66	$205
National General	$93	$211
Nationwide	$61	$155
Progressive	$79	$178
Safe Auto	$122	$200
State Auto	$58	$162
Travelers	$59	$141

Your liability limits will also factor into your car insurance rate. A majority of states require drivers to purchase liability coverage limits of 25/50/25—meaning up to $25,000 for bodily injury to a single person, up to $50,000 for bodily injury from a single accident, and up to $25,000 for property damage costs from a single accident.

Higher liability limits, like 50/100/50 or 100/300/100, will increase your protection—but they will also add to your monthly premium. For most drivers, though, the added cost is worth it.

Here’s how much rates change on average based on drivers’ liability limits:

Provider	15/30/15	25/50/25	50/100/50	100/300/100
AAA	$175	$199	$262	$299
Allstate	$161	$193	$222	$245
Kemper Preferred	$63	$149	$181	$183
MAPFRE	$89	$100	$140	$203
National General	$116	$160	$216	$227
Nationwide	$117	$167	$181	$194
Progressive	$157	$158	$192	$198
Safeco	$140	$164	$179	$197
State Auto	$108	$169	$190	$210
Travelers	$164	$182	$208	$213

7. Optional coverage

Adding optional auto insurance coverages to your full-coverage insurance will also increase the price of your premium. In exchange, you will have more protection for you, your passengers, and your vehicle.

Here are some popular types of coverage that drivers often add to their policies:

• Gap insurance: This optional coverage pays for the difference between what you still owe on your car loan and your car’s actual value after a total loss.
• Medical payments coverage (MedPay): This type of car insurance coverage takes care of medical expenses for you and your passengers after an accident.
• Personal injury protection (PIP): Like MedPay, this coverage option can be used for medical expenses, lost wages, and more after a car accident.
• Rental reimbursement: If your vehicle is not drivable after a claimable incident, this coverage will help you pay for a rental car.
• Roadside assistance: Also referred to as towing and labor coverage, this add-on will help you out with towing, tire changes, battery assistance, and more.
• Uninsured/underinsured motorist coverage: If you are involved in an accident with an uninsured motorist, this optional coverage will help you pay for bodily injury and property damage expenses.

8. Deductibles

If your car insurance policy includes comprehensive coverage and collision coverage, you’ll also have a deductible—an amount of money you agree to pay out of pocket before an insurance claim kicks in to cover the rest.

A higher deductible usually means a cheaper car insurance premium while a lower deductible usually results in higher insurance costs.

9. Credit history

Unless you live in California, Hawaii, Massachusetts, or Michigan, your insurance company can use something called a credit-based insurance score based on your credit history to determine your auto insurance premiums.

Drivers with poor credit have a statistically higher rate of insurance claims, which drives up costs for insurance providers. A recent study by the Consumer Federation of America found that drivers with credit scores under 578 paid 115% more for insurance than drivers with credit over 823.¹

Here’s what our experts found that Jerry drivers pay based on their credit range:

Credit score	Minimum liability	Full coverage
Less than 600	$70	$145
601–699	$65	$132
700+	$62	$121

Need to know:

While federal law permits the use of credit-based insurance scores in underwriting, it’s illegal for an insurance company to use credit as the sole reason to raise rates or deny someone car insurance coverage.

10. Eligibility for discounts

Most insurers offer a range of car insurance discounts that can help reduce the cost of car insurance. You could get a discount for:

• Bundling your car insurance policy with a homeowners or renters policy
• Paying your insurance bill in full
• Achieving a B average or better in school (for full-time students under 25)
• Maintaining a clean driving record for a certain number of years
• Owning a new car (under three years old)
• Enrolling in a usage-based insurance program
• Purchasing a new policy before your current one expires

11. Annual mileage

With every mile you spend on the road, you add to the risk of being involved in an accident or being pulled over for a violation—both of which increase your car insurance costs. That’s why insurers will ask about your typical monthly or annual mileage when issuing car insurance quotes.

Here’s what you might pay for car insurance on average based on your mileage:

Annual miles	Monthly insurance cost
1,000–5,000 (low)	$132
6,000–15,000 (avg)	$144
15,000+ (high)	$153

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Learn more: The best low-mileage car insurance companies (2024)

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12. Insurance company

Remember, while all insurance companies look at the same basic factors, every provider uses a different set of calculations to set your rates. That’s why insurance prices can look so different from company to company.

For example, every insurance company assigns higher rates to drivers with violations, but drivers with DUIs see a significantly lower rate increase with Progressive and drivers with speeding tickets will see the lowest rate increase with Allstate.

There isn’t a universal calculation for car insurance rates—that’s why all auto insurance quotes are estimates—and why comparison shopping is so important.

With the Jerry app, you can easily compare car insurance quotes from dozens of providers to find the cheapest car insurance. Simply download the Jerry app, enter your information, and you can review auto policies from the best car insurance companies.

The app will show you rates based on your driver profile, including your driving record and vehicle information. You can also adjust your car insurance coverage needs directly in the app.

Source

1. https://consumerfed.org/press_release/report-details-severe-credit-score-penalties-in-auto-insurance/ ↩︎