Insurance 101: 10 Common Factors That Affect Your Auto Insurance Premium

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Insurance 101: 10 Common Factors That Affect Your Auto Insurance Premium

Here we are again to break down the overcomplicated insurance lingo to help you better understand your insurance policy, specifically, your auto insurance premium! 

Your auto premium is essentially the amount of money you pay to keep your insurance policy active, usually on a monthly, semi-annual, or annual basis. The premium is determined by many factors, some of which you can control, and some of which you can’t. 

Let’s take a look at 10 Factors that make up your auto insurance premium: 

Factors You Can Control

1. Coverage Amount

Factors like your Auto Policy Limits, the amount you choose for your deductible, and any additional coverages you select (such as Collision, ComprehensiveRoadside Assistance etc.) have a great deal to do with the base amount of your auto insurance premium. Typically, the greater the coverage, the greater the premium. Likewise, the greater the deductible, the lower the auto premium. 

2. Your Vehicle

The cost of your vehicle has a direct effect on the cost it will be to insure it. Remember, insurance is there to repair/replace your auto in the event of a covered loss; if your vehicle costs more to repair/replace, your premium could be higher than others. 

3. Your driving habits

How often you drive your vehicle can definitely have an impact on your premium. The more often you’re on the road, the more likely you are to have an accident. So if you commute to work, you’ll likely pay a higher premium than someone who only drives their vehicle on occasion or for pleasure. 

4. Your Driving Record

Your driving record does have an impact on your insurance premium. The cleaner your record, the more affordable your premium. If you’ve had traffic violations, accidents, etc., you may see a higher premium. 

As for new drivers with no driving/insurance record, you can expect a higher premium for some time as well until you establish an incident free driving record and gain experience. 

5. Your Claims History

As a rule, claims made (or submitted) do have an impact on your auto insurance premium. While a single claim may be dismissible (depending on the circumstances), a string of claims, especially claims related in nature, could result in a higher premium. Having a claims history might flag you as more of a high risk driver than most individuals. 

6. Your Credit Based Insurance Score

Believe it or not, insurers use your credit score to help underwrite and price policies. Actuarial studies suggest that how a person manages their financial affairs can be a good predictor of their likelihood to file insurance claims. This practice allows carriers to better match insurance premiums with the amount of risk that an individual customer might pose. The goal is to minimize the possibility that customers with lower risks might subsidize rates for those with higher risks.

*Note: Laws dictate that insurers are prohibited from setting rates that unfairly discriminate against any individual in every state.

Factors You Cannot Control

7. Your Gender

Women statistically have fewer driver-under-the-influence accidents (DUIs) and less serious  accidents than men. Insurance is very much priced based off of both past statistics and future outlooks based on those statistics. 

8. Demographic factors

Your location can play a factor in your auto premium as well. Urban drivers may see higher rates due to increased rates of vandalism, opposed to those living in rural areas or small towns. 

You can somewhat combat this by installing anti-theft devices, parking your car in a secured garage, etc. Be sure to discuss your home, location, work, and other items relevant to your policy with your local independent insurance agent

9. Your Age

As with any skill, the more practice, the better. The same goes for driving. Generally, drivers over the age of 25 will see lower premiums because they have several years of driving experience, whereas drivers under the age of 25 are still gaining their experience. 

Teenagers are especially risky to insurers. As they embark on many firsts on the road like the highway, city driving, parallel parking, etc.; accidents tend to happen more in this age group. Don’t worry if this speaks to you! That’s why it’s called an accident!

10. Inflation

Inflation is a normal aspect of any economy, but in recent years, we’ve seen extreme inflationary pressures, especially in the insurance industry. Inflation affects all goods and services, driving prices up. Just as you notice the increase in groceries, bills, etc.; the same goes for insurance carriers and the vendors they do business with. 

According to a recent study conducted by the Insurance Information Institute, U.S. personal and commercial auto insurer liability claim payouts combined were $96 billion to $105 billion higher between 2013 and 2022 because of social and economic inflation. 

The cost to repair/replace vehicles, the cost of medical expenses associated with accidents, the cost of litigation, towing, the list goes on and on; when the cost of these items increases, insurance carriers often times must offset them using insurance premiums to keep rates competitive for all policyholders. 


Auto Insurance is necessary to ensure all drivers are protected from the unexpected. Insurance carriers utilize the above factors to provide competitive rates.

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Amy Casey
Social Media & Communications Specialist
Amy joined Rockford Mutual in January of 2017 with an Associates Degree in Marketing. Amy has a great understanding of insurance in general as she has obtained her Associate in General Insurance designation.