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How to Save Money on Auto Insurance: What Affects Pricing

Written by Allison Martin

Allison Martin is a personal finance enthusiast and a passionate entrepreneur. With over a decade of experience, Allison has made a name for herself as a syndicated financial writer. Her articles are published in leading publications, like, Bankrate, The Wall Street Journal, MSN Money, and Investopedia. When she’s not busy creating content, Allison travels nationwide, sharing her knowledge and expertise in financial literacy and entrepreneurship through interactive workshops and programs. She also works as a Certified Financial Education Instructor (CFEI) dedicated to helping people from all walks of life achieve financial freedom and success.

Updated January 10, 2024​

7 min. read​

Did you recently receive your auto insurance renewal documents in the mail? If the rate increase startled you a bit, it’s time to start exploring other options that are more ideal for your budget. It’s equally important to be aware of what affects pricing so you can make the right adjustments to qualify for more affordable auto insurance.

Here’s a closer look at the types of auto insurance coverages available, how providers price policies and ways to save on your premiums.

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Introduction to Auto Insurance Pricing

Before diving into how insurance providers compute premiums, you should know why car insurance matters.

The Importance of Auto Insurance

Auto insurance is a form of coverage you can’t afford to live without. It acts as a safety net that can shield you from serious financial damages in the unfortunate event you’re involved in an auto accident. The same applies if your vehicle is stolen or incurs other damages. So, in essence, you’re doling out your hard-earned cash for something you may or may not ever need.

Still, having the right policy is essential, and it’s equally important to ensure it’s affordable and doesn’t stretch your budget thin. You should also know that a policy with lower premiums doesn’t mean you have to sacrifice quality coverage.

It’s also important to note that the importance of auto insurance extends far beyond the immediate benefits following an accident. It’s a proactive measure that safeguards your financial future against the unpredictable. In the event of a severe accident, the costs of medical bills, repairs and potential legal fees can be astronomical. Without insurance, these expenses could threaten your savings, assets and even future earnings. But auto insurance also contributes to your peace of mind, knowing that you and your family are protected from the financial repercussions of mishaps that can occur on the road.

Beyond the protection it offers, auto insurance can also include various services that add value, such as roadside assistance, which can be a lifeline if your vehicle breaks down. Rental reimbursement coverage is another benefit that

can be quite beneficial, keeping you mobile while your car is being repaired.

And in many places, carrying auto insurance is not just a wise financial decision but a legal requirement. This mandate is intended to maintain public safety and welfare, as it ensures that all drivers can be held financially responsible for their actions on the road.

By comparing car insurance quotes from different insurers, you have the opportunity to evaluate the coverage options and discounts available to you. Each company has its own method of calculating rates, hence the price variations from one insurer to another.

So, take the time to shop around and compare car insurance rates. Doing so can help you find better rates on policies along with adequate coverage that meets your specific needs.

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How Insurers Calculate Auto Insurance Rates

Several factors determine the price you pay for auto insurance. Insurance providers look at your age, gender, driving record, the vehicle you drive, and your geographical location. Coverages, insurance history, mileage and the number of policyholders also influence the premiums you receive. And if you live in a state where providers can use credit-based insurance scores, this three-digit number can also impact your premiums. More on these shortly.

Ultimately, insurance companies assess the level of risk associated with insuring you and your vehicle to come up with a personalized rate. They consider the likelihood of you filing a claim and the potential cost of that claim. For example, if you have a history of traffic violations or accidents, insurers may view you as a higher risk and charge you higher premiums. However, a clean driving record could translate into lower car insurance rates and potential savings.

Understanding the Different Types of Auto Insurance

It’s important to understand the various types of coverage available to you, as different policies cater to different needs and risk levels.

Comprehensive Coverage

Comprehensive coverage is there for the unexpected, non-collision-related incidents that can happen to your vehicle. This includes damages from events like theft, fire, vandalism or natural disasters. So, if your car is affected by a hailstorm, ransacked or stolen, comprehensive coverage will help cover the cost of repairs or replacement.

Collision Coverage

Collision coverage assists with repairs to your vehicle if it is damaged in an accident, regardless of who is at fault. Whether you collide with another vehicle or an object like a fence, this coverage helps you swiftly get back on the road without placing a dent in your wallet or depleting your savings.

Liability Coverage

Liability coverage is mandatory in most states and protects you if you’re at fault in an accident. It covers two key areas: bodily injury and property damage that you may cause to others. Car insurance companies provide various limits of liability coverage, so it’s vital to choose a level that safeguards your assets adequately.

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Personal Injury Protection (PIP)

Personal Injury Protection (PIP), also known as no-fault insurance, covers medical expenses for you and your passengers regardless of fault. In some states, PIP is a required policy addition, and it can also cover other costs resulting from an accident, such as lost wages.

Uninsured/Underinsured Motorist Protection

Uninsured/Underinsured Motorist Protection steps in when you’re involved in an accident with a driver who doesn’t carry insurance or whose insurance is insufficient to cover the damages. It’s a safeguard for you, ensuring that you are not left footing the bill for someone else’s negligence.

Key Factors: What Affects Pricing

When considering auto insurance, it’s important to understand the factors that influence your premium. Below is a breakdown of each.

Driver’s Age and Gender

Your age is a significant determinant of car insurance rates because it’s used to gauge your driving experience and risk potential. Younger drivers typically face higher rates due to their lack of experience. Gender also plays a role, particularly for drivers under the age of 25, with males often paying more.

Insurers also consider age-related factors such as reflexes and vision, which can change over time and affect driving safety. For instance, older drivers may see an increase in premiums as they reach an age where reflexes typically slow down.

Driver’s Driving Record

A clean driving record can lead to more favorable auto insurance rates. Incidents such as accidents, speeding tickets, and DUIs are red flags and communicate to providers that you’re a high-risk driver. Unfortunately, it often translates to increased premiums.

On the other hand, drivers with long histories of safe driving can be rewarded with discounts. Insurers may offer diminishing deductibles or bonuses for each year without a claim, emphasizing the value of maintaining a spotless driving history.

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Vehicle Make, Model, and Year

The type of vehicle you drive also affects your rates significantly. High-end, newer models generally come with higher insurance costs due to their value and the elevated repair or replacement costs.

By contrast, vehicles that are considered safe and less expensive to repair generally have lower insurance premiums. Safety features and ratings can also influence premiums, as well-equipped cars may reduce the likelihood of injury or damage in an accident, leading to potential savings on insurance costs.

Location & Garage Parking

Location impacts your average cost of car insurance due to factors like crime rates, traffic and the likelihood of accidents. Where you park your car can also matter – secure parking in a place like a gated garage may help lower your premium.

Furthermore, the frequency of natural disasters in your area, such as floods or hail, can affect rates. Urban areas with higher vandalism rates may see higher premiums, while drivers in rural areas might benefit from lower rates due to less traffic and crime.

Credit History

Some auto insurance providers assess insurance-based credit scores in states where this practice is allowed. A higher score may indicate a responsible behavior pattern, which insurers may reward with lower rates. But if your credit score is on the lower end, you could be offered steeper premiums.

If you have concerns about your credit health and want to improve it, consider enrolling in Experian credit monitoring services free of charge to know where you stand. You can also use Experian Boost, a free tool that can help improve your FICO Score based on Experian data in real-time.

What Other Factors Affect Auto Insurance Pricing?

When considering auto insurance rates, it’s worth looking beyond the basic factors such as your driving record or the make and model of your car. Here are some other factors that can play a major role in determining your premium.

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Coverage Inclusions

Your coverage selections directly influence your insurance costs. Opting for comprehensive coverage that includes collision, liability, and additional benefits like roadside assistance will typically increase your auto insurance rates. However, selecting minimum liability coverage can significantly reduce your premium.

Insurance History

Insurers consider your previous insurance information, looking for gaps in coverage or a history of claims. A consistent insurance history with no lapses can lead to more favorable rates, while a spotty history with several lapses in coverage may result in higher premiums.

Annual Vehicle Mileage

The number of miles you drive annually can affect your auto insurance rates. Higher annual mileage implies more time on the road, increasing the likelihood of accidents. If you drive less, you might qualify for low-mileage discounts from your insurer.

Number of Policy Members

Adding more drivers to your policy, particularly if they are young or have been involved in accidents, can increase your rates. Each additional member brings a distinct level of risk, impacting the overall cost of your auto insurance policy.

How to Save Money on Auto Insurance

Strategic choices and informed decisions can make a major difference if you’re serious about trimming your auto insurance costs. By focusing on safe driving habits and understanding insurance incentives, you can negotiate better terms and potentially lower your premiums.

Here are some other tips to help reduce your premium:

Practice Safe Driving

Maintaining a clean driving record is essential to help keep your car insurance costs low. Safe driving not only protects you and others on the road but also signals to insurance companies that you are a low-risk policyholder, which can result in lower premiums.

Avail of Discounts and Promos

Explore various discounts and promos that insurers offer. You might get a lower rate for being a member of certain organizations, maintaining good grades as a student, or installing safety features in your vehicle. Always ask your insurer about potential savings, and be sure to take advantage of discounts that are available to you.

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Increase Your Deductibles

Opt for a higher deductible to reduce your auto policy premium. This means you’ll pay more out of pocket in the event of a claim, but your regular car insurance costs will be lower. That said, you must ensure that your deductible amount is affordable for your financial situation. Otherwise, you could set yourself up for major headaches if you’re unable to cover the deductible should the need arise.

Bundle Insurance Policies

Consider bundling insurance policies, such as your home and auto insurance, with a single provider. Bundling can often lead to discounts and a more streamlined insurance management experience since you’re dealing with one company for multiple policies.

Compare Car Insurance Quotes

Always shop around and compare car insurance quotes from different insurers to find the best rate. Prices can vary significantly from one provider to another for the same coverage. Regularly reviewing your options can lead to savings upon renewal or when purchasing a new policy.

Experian offers a comprehensive auto insurance comparison tool that can be a significant time-saver if you are looking to find potential savings on your car insurance. This service allows you to compare your current insurance policy on a detailed level, ensuring the quotes you receive are comparable to your existing coverage.

Even better, the tool is easy to use. Simply enter your current car insurance policy details into their online platform, and you’ll receive rate quotes for policies that align closely with your current coverage.

Experian not only assists in comparing rates but also provides an opportunity to build credit and overall financial health. Sign up for a free Experian account to manage your credit score, which can indirectly impact your car insurance rates—since many insurers (in select states) consider credit as a factor when setting premiums.

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