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How Your Auto Insurance Risk is Calculated

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Things to Remember...

  • If you drive a car you must have sufficient auto insurance
  • Drivers can be classified as high-risk or low-risk drivers
  • Having too many moving violations can increase your insurance premiums

Having a vehicle means that you must carry auto insurance on it. The rate that an auto insurance agent assigns to you is calculated based on whether you are a high or low-risk driver.

Every driver is considered a risk taker. As soon as you buckle yourself into the driver’s seat of the vehicle, the rat race begins. But not everyone takes the same type of driving risks, which is why everyone’s auto insurance rates are calculated differently.

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High and Low Risks

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If you are a licensed driver, then you are considered a risk. Your rating as a high-risk or a low-risk driver depends on a few different factors. One of the most important personal factors that are used to calculate your auto insurance risk is age.

Drivers between the ages of 25 and 55 are considered to be in the prime age bracket and are considered a lower risk.

Women drivers are usually considered as a lower risk in general but that is slowly changing because more and more registered drivers are women.

Single parents are also considered as less of a risk.

Insurance companies take into consideration that a single parent is already responsible enough to parent a child alone so they are more likely to be financially responsible as well.

Married drivers pay less for their auto insurance policies than a single driver does. They are thought to be more stable than single drivers due to the fact that they often have more responsibilities.

A single driver of the same age with the same driving record as a married person will be assessed as a higher risk simply because of their marital status.

A Good Driving History is Important

If you have any type of driving violation attached to your driving history, be prepared to pay a higher insurance rate than someone whose driving record has no infractions.

Any prior accidents that you have been involved in will be reflected on your driving record, which increases your risk.

In some instances, insurance agencies have been known to slap a severe penalty on your driving record for up to five years after the accident has occurred.

Any type of speeding ticket will raise your risk factor. Speeding reflects carelessness and a disregard for the driving laws set in place by the government. Insurance companies will consider any type of speeding ticket as a bad reflection of the driver.

This is calculated into your insurance risk rating and will ultimately increase your premiums.

Driving under the influence of alcohol or drugs will not only earn you a moving violation ticket, but it can also cause your driver’s license to become suspended or, worse case scenario, revoked.

The bottom line is that the better your driving record is free of accidents, tickets, moving violations, the lower your risk rating will be which will result in lower insurance rates.

Your Address Makes a Difference in Your Rate

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The area where you reside plays a huge role in how your auto insurance risk is calculated by your insurance agent.

Drivers who claim a residence in a larger metropolitan area run a higher risk of not only being involved in an accident but also of being the victim of vandalism or theft.

Cities are congested with much more traffic than urban areas. The logic of insurance risk is that the more cars that are used in an area, the more likely they are to hit or be hit by another car.

Those drivers who live in an area that has less traffic will be considered less of a risk and that helps lower their premiums.

Some neighborhoods are under the insurance radar as being a high crime area.

If you live in one of these areas, expect your insurance risk to be calculated at a higher rate because your vehicle will be more likely to be involved in a theft.

Any type of anti-theft protection that is installed in your vehicle will usually guarantee a decrease to your insurance policy

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The Type of Vehicle You Drive is Considered

Brand new vehicles fresh off the dealer’s lot are going to require more coverage than a second-hand vehicle. Sports cars are expensive to manufacture which is why they are expensive to repair in case of an accident.

A vehicle that has a lesser value will cost less to insure.

If you plan on driving a brand new four-by-four with all of the fixings, be prepared to be immediately calculated as a higher risk simply because it could cost a small fortune in repairs if you are involved in an accident.

If you would like to see what your vehicle is valued at, visit the website Kelley Blue Book. Of course, the value that you are given will only be as accurate as the information that you provide.

A vehicle that is used as a personal vehicle or strictly for business can affect the calculation of your risk rating.

When you have a car that is a company car, make sure to tell your insurance agent that the vehicle you wish to insure is used specifically for business purposes.

Other Items That are Added to Your Risk Factor

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The distance that you drive to and from work every day is another factor that is calculated into your risk rating. The less mileage you accrue per year, the less of a risk you pose.

If you only drive a few miles a day to reach your job site, your risk of having an accident is lower so your insurance premiums will be lower.

Teenage drivers are considered an extremely high risk when it comes to driving. The Insurance Information Institute (III) states that teenage drivers have an extremely high crash rate due to their inexperience and lack of maturity.

Vehicle accidents, according to the III, are the leading cause of death for teenagers. This is another factor that is used to calculate your insurance risk.

Parents often add their teenage drivers to their policies because it is usually much less expensive than having an individual policy as a teenage driver.

Be aware, however, that if your teen is involved in any type of accident, it is reflected on your policy and your overall premiums will increase.

Number of Years You Have Been Driving Matters

This is tied into the age factor of drivers, but some people do not always start driving as soon as they hit the legal age.

 If you are 30 years old and have only been driving for the past two years, your risk will be calculated at a higher rate due to lack of experience.

A driver of the same age who has been driving for the last 10 years will pay significantly lower premiums because they are considered to be less of a risk.

Your Credit Score is Calculated into Your Risk Factor

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Your credit score can help or hurt you. Insurance agencies run a credit check on everyone to whom they issue a policy. Ensuring that their customers can and will pay for their policies on a timely basis is very important.

The better your credit score is, the lower your risk and the lower your premiums will be. Having a lower credit score can scream that you are irresponsible because you do not always pay your bills or that you are often late in making your payments.

Your credit score is compiled by the three main credit-reporting agencies, which are TransUnion, Equifax, and Experian. Credit scores range between 300 to 850.

The simple logic is that the higher your credit score is, the better for you because it means you are less of a credit risk and you are more likely to pay your creditors and pay them on time.

For more information on how credit scores are calculated and how to improve yours, visit MyFICO.com.

If you would like to know what your current credit score is, you can visit FreeCreditReport.com.

You are entitled to one free credit report per year. If you would like to have more than one per year, there is a fee associated with it.

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