Why Does My Car Insurance Cost So Much?

Some people pay as little as $35 a month for car insurance; others may pay much more. It is true that a person’s driving record and the amount of coverage they carry have a great deal to do with it, but these are only part of the equation.

Actuarial Tables are Consulted to Determine Rates
You’ve probably heard of these, but aren’t sure how insurers use them in order to set the amount of your insurance premiums. These tables use rather complex algebraic equations to determine probabilities. In simple terms however, actuarial tables assist underwriters in figuring out how likely someone who is x years old with y experience driving a z model vehicle is to have an accident and how serious that accident is likely to be.

Obviously, an actuarial table is not a crystal ball; nor is an underwriter a Delphic Oracle. However, such mathematical formulas have proven to be the best tools insurers currently have for making such determinations.

Factors Influencing Insurance Rates
One of the biggest determinations of car insurance rates is age and gender. Statistically, males between the ages of 16 and 25 are the most likely to have a serious vehicle accident. Young men are generally predisposed to engage in risky behaviors such as speeding, reckless driving and even operating a vehicle under the influence of alcohol and/or drugs. Other factors enter into the picture, of course; teenagers who excel in academics statistically have a lower probability of being involved in a collision. For this reason, many insurance companies offer “good student” discounts.

Another factor used to determine the amount of insurance premiums is the make, model and year of the vehicle. To a large extent, this means replacement value; as you might expect, repairing or replacing a newer, more expensive vehicle costs more than replacing an older or less expensive one. When it comes to liability, the size of the vehicle plays a part as well. Although it may seem obvious, it’s worth pointing out that a massive GMC Denali will cause more in the way of damage and injuries than a Mini Cooper.

Interestingly, those who own two-seater sport roadsters such as a BMW Z4 or a Mazda Miata pay a premium on their insurance policies for no other reason than the vehicle has only two seats. Again, this boils down to statistics. Historically and statistically, people who drive vehicles of this type tend to drive faster and take unnecessary risks. This is one reason that some manufacturers of such roadsters insert a very tiny, cramped, but legal back seat into the vehicle. Technically, a “two-seat” roadster with a small jump seat in the back, like some Porsche models, is considered a “four-seater” for insurance purposes.

What Does Credit Have to Do With It?
The practice of basing one’s premiums on one’s creditworthiness is becoming increasingly controversial, especially these days when people get into trouble through no fault of their own (medical bills, job outsourcing, etc.) Nonetheless, this is also based on actuarial probabilities; it is assumed that someone who is financially “irresponsible” will also be irresponsible when behind the wheel. This may seem unfair, and more and more consumer groups are speaking out on this issue. Meanwhile, some legislators are currently looking into this practice.