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3: Analyze Your Circumstances

How Are Insurance Premiums Determined?

Insurers use information about your driving record and any insurance claims you have made to set your premiums. 

The Fair and Accurate Credit Transactions Act entitles you to a free copy of your file, which you can request for free from LexisNexis Personal Reports

Most auto insurance policies include auto liability insurance, medical payments coverage, and collision and comprehensive coverage. According to the Insurance Information Institute (I.I.I.), insurers determine auto rates based on factors like those described below. 

  • More mature drivers tend to have fewer accidents. Younger drivers and drivers who are not married will tend to pay more. Also, women often pay less than men. 
  • If you park on the street, you can expect higher premiums than if you have a garage. If you live in a high crime area, you may pay more in premiums. Weather conditions, costs of car repairs, and number of litigations in your area also affect pricing. 
  • Speeding (or other traffic violations) and accidents where you are at fault will raise your premiums.
  • The more you drive, the more you pay. And if you use your car for business, you will pay higher premiums.
  • Many insurers use your ability to pay regularly and on time for credit card, mortgages and other debts as an indicator of whether you will file a claim and how much it might cost. Bankruptcies and debt issues can raise your premiums. 
  • The cost to repair your car (or replace it) can affect your premiums. You can expect to pay more for high-value cars or cars with special features. 
  • Higher limits on liability, medical and uninsured/underinsured motorists will raise your premium. Getting a lower deductible also will raise your premiums. 

Credit and Insurance Scores

SAM tips

Some states do not allow pricing based on financial, credit and risk factors. However, maintaining a good credit history can help your premiums in some cases. Dig deeper with SAM’s Credit and Debt Basics and Insurance Basics courses.

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