How Do They Come Up With Your Insurance Premiums

Insurance Premiums

Why do insurance companies look at premiums differently than you do?  Why is it that insurance premiums don’t seem logical?

It just seems logical that your insurance premiums should be based on how many times you use your insurance.  If you never use your insurance then the premiums should never increase…right?

That of course seems a lot easier, but it’s not exactly how insurance companies do it.   Insurance companies use  a number of factors to determine your insurance premiums.   Let’s break those factors down.

What Your Premiums Are Based On

Your Credit Scores

  • Credit scores do factor into your insurance premiums; both homeowners insurance and auto insurance.
  • Insurance companies take credit ratings very seriously, and so should you.
  • A good credit score is a score above 750.
  • Insurance companies do quote lower premiums on good credit scores.

Your Claim History

  • Insurance Premiums and ClaimsLots of claims equal higher insurance premiums.
  • If you file a lot of claims, insurance companies will increase your auto insurance premiums as well as your home insurance premiums.
  • Yes, the purpose of insurance is to cover you in the case of a loss.
  • Insurance companies believe that insurance coverage is for large losses, not little annoyance losses.
  • Insurance companies look more favorably on a very large claim than many little claims.
  • Many insurance companies are making it a company policy to require policyholders to carry high deductibles.
  • High deductibles keep the occurrence of small, petty claims down.
  • Lower claims will save the insurance company money; so they can lower your premiums.

Your Driving Record

  • Bad driving records equal higher auto insurance premiums.
  • Your driving record in the case of auto insurance is your report card.
  • If you get lots of speeding tickets, DUIs or other moving traffic violations, your insurance premiums will increase.
  • Insurance companies label excessive tickets as having poor judgement and being somewhat irresponsible.
  • Actuarial statistics show that someone who speeds is more likely to cause an accident.
  • Accidents cost insurance companies money.

The Risk

  • With your auto insurance, insurance premiums are based on the year, make and model of the auto.
  • No, insurance companies do not charge higher premiums for red cars.
  • Insurers look at the likelihood of a car being stolen.
  • Certain makes and models get stolen more often.
  • Insurers also look at how susceptible the vehicle is to damage.
  • Certain makes and models damage more easily in an accident.
  • Some cars cost more to repair, so the premiums would be higher.
  • Youthful drivers pay higher insurance premiums because due to their inexperience they are more likely to cause or be in an accident.
  • Youthful males do cost more.
  • Teenage boys cost two times as much to insure as girls, sorry guys.

Ways to Save Money

Some of the factors insurance companies use are in your control, others are not.   So focus on what you have control over.

  • Ask your insurance agent about all the discounts offered.
  • Good student discounts.
  • A discount for insuring your home and auto with the same company.
  • Take a driving course.
  • Buy life insurance, some insurance companies offer additional discounts if you also insure your life with them.
  • For home insurance discounts, install a security system.
  • For additional home insurance discounts, upgrade your heating, plumbing and electrical systems.
  • Drive safe, avoid speeding, don’t drink and drive.


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