How does the insurance company determine my premium?

I started Insurance Blog by Chris™ because I have a passion for insurance. Here at the blog, our job is to educate and inform people about the best insurance for them.
Since then, we have grown into national brands with a large team of researchers helping people understand all forms of insurance.

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states.
After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insu…

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Reviewed by

Rachael Brennan

Licensed Insurance Agent

UPDATED: Feb 2, 2022

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Here's the Scoop

  • Every insurance company puts applicants through an underwriting process
  • You must provide personal and accurate information to receive a rate unique to you
  • Every insurance company has its own approach to the underwriting process

Have you ever wondered, How does a car insurance company determine my premium?

All drivers need to have car insurance, but not many know exactly how their actions can affect their insurance rates or what information an insurance company uses to determine if their policy will be affordable or a little more costly than they would prefer.

But how can I determine if my premium or car insurance rates fall within my budget?

Well, while you may not be privy to the exact specifications of every insurance company’s underwriting process, learning the basics of how to calculate premiums for drivers can prove to be incredibly helpful in securing you an affordable auto policy.

Knowing how to calculate premiums for general insurance purposes can empower you to make smarter choices as a driver and can direct you to the best insurance company for your needs.

Enter your ZIP code and start comparing free insurance quotes if you need to know, Do the coverages I choose determine my premium?

Table of Contents

How are insurance premiums calculated?

Does the information I supply when filling out car insurance quotes determine my premium?

It does; however, drivers who want to know how to calculate insurance premium formulas may be interested to know that there is no exact method to determine what a driver’s rates will be. In fact, every insurance company in today’s market has its own take on how to calculate premium percentages and employ statistics — as well as mathematical calculations — to determine how much a policy will cost an individual driver.

This is known as the underwriting process. And while insurance agents may be able to explain how your policy works and walk you through filing a claim, it is the insurance underwriter who determines whether or not your rate has been fairly calculated.

Now, there are several commonalities between each company’s underwriting process. Whenever you apply for an insurance policy, you will be required to supply certain details about yourself that will be fed into an insurance company’s underwriting formula.

How to Apply for Insurance Quotes

When you shop online for free insurance quotes, you may be amazed at how convenient and efficient it is. However,  it’s important to remember that in order to get an accurate rate from the companies you apply to, you must be prepared to provide the following information:

  • Your address
  • Your gender
  • Your marital status
  • Your occupation
  • Your age
  • The age at which you first obtained your license
  • Your driver’s license number
  • Your car’s make and model
  • Your car’s VIN
  • Your contact information

With all of this information in hand, the insurance company you’ve applied to will be able to pull up your driving and  claims history to determine if you have moving violations or claims on record. Most insurance companies will also run what is known as a soft check on your credit score.

Now, if you’re concerned that shopping for insurance will harm your credit, you don’t need to worry. A soft check doesn’t detract any points from your insurance, so you can obtain as many quotes as you would like.

But what else can affect my car insurance rates and determine my premium as either high or low?

Well, the amount of coverage you want and your location are two factors that play a huge role in determining how much you will pay for your insurance. Below you can view the average rates for full coverage and liability in your home state:

Car Insurance Rates by State

State Monthly Liability-Only Car Insurance Rates Monthly Full Coverage Car Insurance Rates
Arizona $41 $81
California $39 $82
Georgia $41 $87
Illinois $36 $74
Indiana $31 $63
Louisiana $61 $117
Maryland $50 $93
Missouri $33 $73
Nebraska $29 $69
Ohio $31 $66
Oklahoma $37 $84
Pennsylvania $41 $81
Texas $42 $92
Utah $39 $73
Wisconsin $30 $61
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As you can see, your location can have a major impact on your rates, which is due to the fact that insurance companies conduct a lot of research. For example, if you live in an area with a high rate of car theft, you can bet that your insurance company knows about it and will adjust insurance policies accordingly for drivers who live in such a high-risk area.

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How can drivers reduce their insurance rates?

Is there any way to acquire affordable car insurance or to determine my premiums to be less expensive, even if I live in a high-risk area?

While being a cautious and conscientious driver is ultimately the best way to ensure that insurance companies offer you low rates, you should always confirm that every discount you qualify for has been added to your policy. If you don’t regularly review your policy, you may not even know that you’re missing out on simple ways to save money.

Here’s a list of common insurance discounts that are offered by some of the best car insurance companies in the business:

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In addition to using discounts to lower your rates, you should also make sure that you policy is up-to-date. For example, if your teenage son just moved out of the house and purchased his own policy, you should verify that your policy is only covering the drivers and cars that are currently in your household.

The next time you wonder, Can I buy car insurance and determine that my premiums will work with my budget?, just remember that, while driving safely is always the optimal way to save money on your policy, you should always set aside some time to cast a discerning eye over it.

What You Need to Know About Determining Insurance Premiums

An insurance company really needs to get to know you as a driver in order to provide you with an accurate rate quote. Drivers who tend to follow safe driving practices and have fewer driving violations tend to pay lower rates because the insurance company’s underwriting process deems them as low-risk.

Bearing that in mind, if you want to secure low rates for yourself, you should always do your best to follow traffic laws and obey the speed limit. Of course, if you still want to reduce your rates, you can ensure that you are getting every discount you deserve added to your policy in order to maximize your savings.

If you want to know, Does my location determine my premium payments?, enter your ZIP code to begin comparing free quotes from insurance companies near your city today.