We all know that car insurance can be costly. Whether you are a student just starting university or a father/mother of a family, insurance can cut into your household budget. As a way to gain financial leeway, many drivers look to cut down their insurance rates by comparing insurance companies.

However, switching insurers is not always the most effective way to decrease the price of car insurance. Instead, you should look into the major factors that influence how insurance for you and your car will cost. But how exactly do insurance companies calculate the cost of car insurance? We want to highlight five significant aspects that determine your car insurance rates.

Your age

Age plays a significant role in determining your insurance rate. For example, young drivers have to pay a lot more than someone in their early 30s. Insurance companies justify this with the lack of experience that drivers below a certain age have. On the other hand, the older you get, the lower your rates, up to your 50s, where insurance rates are usually the lowest. After that, the price goes up again, as drivers aged 70 and above are more prone to accidents.

Vehicle value

This one should be no surprise. If your car is more expensive and valuable, the insurance rate goes up accordingly. Convertible car insurance is likely to be cheaper than that of a semi-truck, for example.

But not only the upfront purchase price for a car is a deciding factor. The cost of spare parts can also influence the insurance rate, which explains why oldtimers can be more expensive to insure. So if you want to save money on your insurance, don’t go for the car with the $50,000 price tag.

Your driving history

As drivers, we all like to boast about our skills behind the steering wheel. However, the truth is on paper, namely: your driving record. With every violation and accident, you collect points (and not the kind of ones you like to have). For an insurance company, these points can be one of the reasons to give you higher rates. As a driver with a history of misconduct, you are a possible risk for the insurer.

Just like smoking won’t help you get health insurance for cheap, being a bad driver will only increase the cost of your car insurance. If you have received speeding tickets in the past or, even worse, been caught with a DUI, your chances with insurance companies might be slim. Accidents can have a massive impact on your rates, too, depending on the type of accident and whether you were at fault.

Your state of residency

In the United States, a lot of costs and expenses vary by state. Car insurance is no different. Due to the difference in laws from Arizona to Wyoming, insurance rates for your car can differ by several thousand dollars annually, depending on your state of residency. Before you decide on car insurance, always make sure to check out the laws and rates of your state.

But insurance rates are not the only thing that differs from state to state. For example, several states are so-called ‘no-fault states,’ requiring every driver to file a claim after an accident. The question of who was at fault for the accident plays no role here, as the state laws demand drivers to file claims for bodily injury and medical bills for themselves. As of writing this article, 12 states in the US have a ‘no-fault’ policy, including Florida, Michigan, and New York.

Coverage level

If you go for the bare minimum in terms of coverage, your monthly rate will be relatively low. However, if an accident occurs, you will be forced to pay a lot more out of your own pocket, too. This is why getting higher coverage can be worth it. However, as the coverage limit by the insurance company rises, so do the monthly fees.

It can be tempting to go for the lowest coverage level, especially if you never had an accident before. However, car accidents can happen at any given time. In addition, there are so many factors that go into crashes and road accidents that it can be tough to calculate the risk, even with a clean record regarding accidents.

Bonus: Discounts on your insurance rates

Depending on your insurance company, there might be some ways to save on insurance rates. For example, many insurers reward the drivers of environment-friendly vehicles like electric cars, while others offer discounts for military members. Make sure to check with your insurance company and see if they offer any special deals that you might qualify for. It could save you several hundred dollars annually.