How does the insurance company determine my premium?

How the insurance company determines your premiums depends on a few different variables. Auto insurance companies often consider your age, gender, ZIP code, and driving record to determine your rates. However, it's illegal to use gender or age in some states when pricing insurance policies. So, it can pay to shop around with multiple companies to find the most affordable auto insurance rates.

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Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years Leslie Kasperowicz

UPDATED: May 10, 2022

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What You Should Know

  • The insurance company considers your age, gender, driving record, and place of residence when determining your premiums
  • Your driving record will have a massive impact on how insurance companies calculate your premiums
  • Every insurance company determines premiums differently, so compare multiple companies to find the most affordable auto insurance quotes

How does the car insurance company determine my premium? The answer isn’t as simple as it seems. Every insurance company uses different criteria to determine rates, and it’s important to learn how to compare auto insurance quotes so that you can lock in the best rates with a reputable company.

To ascertain how to calculate a premium percentage, most auto insurance companies scrutinize your driving record, your ZIP code, and the kind of car you drive. However, depending on where you purchase auto insurance, your company may also consider your credit score and marital status. 

Read our guide to learn how the insurance company determines your premium. We discuss the formula that car insurance companies use and teach you how to shop for and compare auto insurance quotes from different companies.

Are you ready to find more affordable auto insurance premiums? Enter your ZIP code above to obtain free quotes from local companies today.

How does the insurance company determine my premium?

Overall, there are twenty things that can affect your auto insurance costs. Some of these factors are out of your control, like your age and gender. However, there are other variables that you can modify to control your rates, such as the amount of coverage you buy and the kind of car you choose to drive.

But age and gender are two of the most common variables that auto insurance companies use to determine your rate. In fact, age will be the main determinant in the amount that you pay for coverage.

The older you are, the more experience you have behind the wheel. Because of this, auto insurance companies typically offer more affordable rates to older drivers. The table below reveals how much drivers may pay based on gender and age.

Average Monthly Insurance Rates by Gender and Company
Insurance CompanySingle 17-year old femaleSingle 17-year old maleSingle 25-year old femaleSingle 25-year old maleMarried 35-year old femaleMarried 35-year old maleMarried 60-year old femaleMarried 60-year old male
USAA$400.63$448.80$165.71$177.18$129.29$128.36$120.82$120.75
GEICO$471.13$523.25$198.24$188.57$191.91$192.70$187.26$190.29
State Farm$496.16$610.36$194.66$212.88$173.48$173.48$156.16$156.16
American Family$499.71$677.54$190.72$224.56$183.56$185.36$166.08$167.87
Nationwide$479.70$597.94$223.87$240.75$196.71$198.95$177.52$184.55
Progressive$724.16$802.12$224.81$229.89$191.41$181.27$165.96$170.72
Farmers$710.16$762.00$245.57$253.45$213.08$213.15$194.73$204.03
Travelers$775.61$1,070.91$193.77$207.60$181.56$183.29$171.00$172.87
Allstate$773.52$886.88$285.41$297.58$263.01$260.25$242.78$249.22
Liberty Mutual$968.42$1,143.22$329.97$375.26$316.90$321.40$287.08$306.71
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As you can see, younger drivers pay more than double what a 25- or 35-year old driver would expend. If you’re a young driver, you can acquire more affordable auto insurance by taking defensive driving courses and driving an older vehicle.

Another major factor that impacts how to calculate premium percentages is your zip code. The average number of automobile accidents and car thefts in your state will determine your insurance rates.

Review this table to discover how auto insurance rates vary by state.

Average Annual Auto Insurance Rates by State
StateAverage Annual Auto Insurance Rates
Hawaii$2,555.64
North Carolina$3,393.11
Iowa$2,981.28
Virginia$2,357.87
New Hampshire$3,151.77
California$3,688.93
Alaska$3,421.51
New Mexico$3,463.64
Wisconsin$3,606.06
Washington$3,059.32
Missouri$3,328.93
Ohio$2,709.71
Illinois$3,305.48
Arizona$3,770.97
North Dakota$4,165.84
Oregon$3,467.77
Maine$2,953.28
Tennessee$3,660.89
South Dakota$3,982.27
Nebraska$3,283.68
New York$4,289.88
Utah$3,611.89
Massachusetts$2,678.85
Indiana$3,414.97
Median$3,660.89
New Jersey$5,515.21
Nevada$4,861.70
Maryland$4,582.70
Kansas$3,279.62
Delaware$5,986.32
Colorado$3,876.39
Mississippi$3,664.57
Montana$3,220.84
Wyoming$3,200.08
Alabama$3,566.96
Pennsylvania$4,034.50
Georgia$4,966.83
South Carolina$3,781.14
Texas$4,043.28
Oklahoma$4,142.33
Connecticut$4,618.92
District of Columbia$4,439.24
Vermont$3,234.13
Rhode Island$5,003.36
Arkansas$4,124.98
Michigan$10,498.64
Kentucky$5,195.40
Florida$4,680.46
Louisiana$5,711.34
West Virginia$2,595.36
Idaho$2,979.09
Minnesota$4,403.25
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While you don’t have much control over your age or other drivers in your state, these are the main variables that insurance companies use to determine your rates. However, you can lower your costs by taking control of the factors that you can change.

Do insurance companies consider my driving record when determining my premium?

Your driving record has a major impact on how insurance companies calculate your rates. Points on your driver’s license — from speeding tickets to DUI infractions — are some of the substantial reasons why auto insurance rates increase. Insurance companies assume that drivers with a clean record are less likely to file a claim and, therefore, reward them with cheaper rates.

Your risk level is determined by the factors discussed above, including age, gender, driving record, and vehicle type. How do car insurance companies calculate risk? They consider those variables and classify drivers as one of the following:

  • Preferred risk – a flawless driving record and minimal-to-no claims with no lapse in coverage
  • Standard risk – 1-2 minor driving infractions with no lapse in coverage
  • Non-standard (high) risk – major traffic violations, coverage lapses, and/or at-fault accidents and claims

An insurance company will use actuaries to translate its unique risk variables into monetary amounts for these different classes of drivers. Actuaries statistically analyze the likelihood of claims and financial losses based on a driver’s history, age, and more to classify them into one of the three risk levels. 

Different actuaries will use dissimilar risk assessment formulas to help companies determine their rates. Thus, rates can vary among companies for different types of drivers. If you have a less-than-stellar driving record, then compare rates from multiple companies to ascertain which has the most affordable premiums for you.

What other factors determine my auto insurance premiums?

Along with your age, gender, and zip code, other more amenable factors also impact your insurance premiums. You can change these factors in order to decrease your auto insurance rates:

  • The amount of coverage you purchase
  • The type of car you drive
  • A deductible increase 
  • An anti-theft device installment

For example, your auto insurance rates are automatically higher if you elect to carry comprehensive and collision coverage instead of merely liability-only. Conversely, you can lower your rates by selecting higher deductibles on either or both of your comprehensive and collision policies, but be aware that you’ll pay more out of pocket in the event of an accident.

Every insurance company calculates auto insurance rates differently. Shopping around with multiple companies allows you to sometimes pick and choose which factors go into determining your premiums. 

For example, it’s illegal in some states to determine rates by gender. Depending on where you live, this could mean saving money on auto insurance. Keep this in mind as you look for car insurance, and remember to compare quotes from at least three different companies to guarantee that you’re paying the right price for coverage.

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How do companies calculate insurance premiums for my car?

In general, companies calculate insurance premiums by mulitplying the total insured amount by the insurance premium rate. This number can then be divided by 6 or 12, depending on how you decide to pay your premiums. 

While we are using this equation in terms of auto insurance, it can serve as a foundation for any type of insurance rate. Once you learn how to calculate premiums in general, insurance becomes a slightly easier to understand.

How to Calculate Insurance Premium Formula: (Insured Amount x Premium Rate) / 12 = Monthly Auto Insurance Premium

The total insured amount is the portion of coverage you select for your policy. The insurance premium rate is the level of risk you pose to the insurance company. Both of these variables are used to calculate your insurance rates.

Now that you know how the insurance company determines your premium, start comparing coverage now to find the most affordable rates. Enter your ZIP code below to obtain free auto insurance quotes from local companies near you today.

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