This article comes from Michael, a contributing editor of the Dough Roller, a personal finance and investing blog.
For some, car insurance can be the most unnecessary bill in your monthly budget.Â Â Every month you send a payment in just to make sure that youâ€™re covered in case of an automobile accident.Â Should the day never come in which you need to use your insurance, first consider yourself lucky, then get angry that you spent tens of thousands of dollars on something you never used.
Like a FICO score, thereâ€™s a certain formula in calculating how much you need to pay in order to be covered.Â With an estimated 5.5 million reported crashes and another 11 million unreported crashes every year, insurance companies need something in place to make sure they arenâ€™t going belly-up.Â Â Letâ€™s take a look at the four major factors in determining how policies can vary from person to person.Â While each provider uses different percentages in their equation, all four questions still make up your policy.
What Do You Drive? â€“ Of all the factors that play into Insurance premiums, this one seems to be the least important.Â Different automakers and models have different safety features that insurance providers like and dislike.Â Generally, the faster and bigger the car is, the bigger the premium.Â While I would argue that the driver makes up for 99.9% of all automobile accidents, insurance companies would argue that certain vehicles could cause more property and personal injury damage than others.Â TouchÃ©!
Who Are You? â€“ The very first information you will fill out when looking for a quote is your personal information.Â Usually when you sign up for something, your personal information is only used for registration purposes.Â With auto insurance, however, who you are plays a very big role in how much you pay.Â Your gender, age, marital status, geographic location and health condition are all picked apart to see how responsible of a driver you are and how likely you might be to plow into another vehicle.Â If you are a 17-year-old kid from New Jersey who isnâ€™t married, you can expect to pay more than the 49-year-old married man of two from North Dakota.Â Even the job you have plays a roll.Â Professors and Engineers pay substantially less than others because historically, their sub-culture has fewer accidents than others.
How Good Is Your Driving? â€“ If youâ€™re like me and have never received a ticket or been in an accident (knock on wood) then you should grade an A in this area.Â Speeding tickets, points on your license, DUIâ€™s and any kind of auto accidents can negatively affect your auto record, as expected, and can cost you thousands of dollars in the long run.Â Many people donâ€™t realize that a $200 speeding ticket is only the initial cost.Â Once your insurance provider gets a hold of that, expect to pay a little extra on your premium for a very long time.
Where Do You Drive? â€“ Using your car to commute from work, school and other general use is expected, but where you work and go to school can cost you.Â The more open the area, the less you will pay for auto insurance.Â Cities such as New York, Miami, Los Angeles and Chicago are all highly trafficked areas that have thousands of accidents everyday.Â So if you commute to and from these areas, expect to pay more than the University of Montana student.
Other, smaller factors can also affect your car insurance rates such as city crime rates, credit worthiness and even how many fraudulent claims have been filed on vehicles just like yours. While itâ€™s impossible for an insurance company to make this an exact science, the good ones know you better than you know yourself.
Different providers are able to offer different rates because the formulaâ€™s they use to determine risk vary, albeit slightly.Â With every new research study and new vehicle feature, the formula changes, so while one provider may have been the best for you last year, it could be the worst for you this year.Â Make sure to stay on top of your auto insurance and regularly compare auto insurance for better quotes, theyâ€™re definitely out there.