Why Car Insurance Rates May Surprise You
If you assume that your car insurance rate is directly related to your driving record you are partially correct. While it is true that your insurance goes up if you have been in an accident or received a speeding ticket, it is also true that other factors also influence the cost of car insurance. Many people find it surprising that their insurance rate is higher due to things that seem completely unrelated to driving. Let's review what factors influence the cost of car insurance and why.
In this case we aren't referring to education related to driving. The level of education a person has (high school, college, post-college) will influence their car insurance rate. Those with a higher level of education pay less. Those without a high school diploma will pay the most. Why? Well, auto insurers have found that the rate of claims decreases with more education.
According to DMV.org, not only does education impact the cost, but occupation is a factor as well. Some jobs, such as doctor, lawyer, real estate broker and salesperson, are considered higher risk because they are high stress and may cause lack of sleep. Accident levels tend to be higher for people in these careers so their insurance cost is higher. By comparison, scientists, accountants, and teachers are considered low risk as they are less likely to have an accident. The result is a lower insurance payment.
Type of Car
Which kind of car you drive will impact how much you pay for insurance. Generally the rate is linked to the safety features available on the car. In addition, cars that require expensive repairs will have a higher insurance rate. So, a sports car like a Ferrari will be more expensive to insure than a Ford family sedan.
If you assumed credit score only impacted the terms of your car loan think again. Your credit score will also affect your insurance rate in most states. In fact, a University of Texas study confirmed that a lower credit score corresponds to an increase in the probability of having an accident so many companies increase the cost of insurance. Some states prohibit this. California is one example where it is against the law to use credit score as a factor in determining insurance rates.
Earlier we talked about the type of car you own. Horsepower matters too. If you compare two identical cars with the only difference being engine size you will find two different insurance rates. It costs more to repair a 6 cylinder engine so it costs more to insure it as well.
Studies have shown that married people are less likely to get into a car accident, and even when they do the accident has less expensive repairs when compared to a single person. Therefore a rate reduction is often applied to married couples.
Where You Live
If you live in an urban setting you will be traveling on more congested roads, increasing the risk of an accident and therefore increasing the cost of insurance. Proximity to work also makes a difference. The more you drive the higher probability of an accident. Therefore the longer the commute, the higher the insurance rate.
A single lawyer with a low credit score, driving a 6 cylinder Ferrari 45 miles to work will pay a significantly higher insurance rate than a fiscally responsible accountant, driving a 4 cylinder Hyundai 5 miles to work even if both have a clean driving record. It should also be mentioned that although many people think insurance rates are tied to income level and retirement savings, those two items are not a factor. Surprised? We were!