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UPDATED: Mar 13, 2020
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Insurance companies can only profit when they collect more in premiums than they need to pay out in claims. Because of this, customers who have a high risk of auto accidents will pay more for auto insurance than people deemed to have a lower risk. Some people may be unable to obtain coverage at all if their risk is very high. Calculating risk is an important part of auto insurance, and insurance companies review numerous factors when determining what category of risk a driver qualifies for.
The single most important element of a driver’s insurance premiums is their driving history. People with a history of accidents will pay more for insurance than people who have never been involved in a collision. Additionally, people who routinely get traffic citations or who have been convicted of a DUI will pay higher premiums. Beyond driving records, insurance companies assess statistical data about a driver’s age, gender, marital status, geographic location, type of car being driven and more.
Generally, all drivers will fall into one of three categories of risk, and their premiums will be determined accordingly:
The safest drivers, these are individuals who have carried liability insurance with healthy minimums for at least a year without having to use their coverage. They have no at-fault auto accidents, a minimum number of not-at-fault accidents and have maintained a driving record clean of traffic violations.
These drivers have usually had a policy for several years and have good credit, especially in regards to paying their insurance. They may drive fewer miles per year and have a limited number of people with access to the insured vehicle.
The majority of vehicle owners will qualify as standard risk drivers. These people may have only one or two problems keeping them from qualifying for preferred risk rats, and identifying that problem area can help them to save money on their auto insurance premiums in the future.
Standard risk drivers may have one or two traffic violations against their driving record, or they may have had an at-fault accident in the past few years. Their credit will be average to sufficient, and they will have had insurance for at least six months. Standard risk drivers with just a single point against them will usually have very competitive rates; as multiple flaws add up, the cost of the policy will increase.
Drivers deemed high risk may pay extremely high insurance premiums, especially if they must carry full coverage to satisfy lien holder requirements on financed vehicles. Some insurance companies specialize in high-risk insurance and may offer competitive rates, but high-risk insurance will never be as affordable as insurance for preferred-risk drivers.
High-risk drivers are often placed into this classification after being involved in multiple at-fault collisions. Accident-free drives can still be classified as high-risk if they have numerous tickets or a single major violation, like a DUI conviction. People who have never had insurance before, who have allowed previous policies to lapse or who have very bad credit will also be placed in this category.
Beyond these risk categories, a driver’s insurance rates are also affected by things beyond the driver’s control. Risk is calculated at a geographic level as well as a personal level; some areas have higher premiums than others due to state laws and regulations. States with a high rate of uninsured drivers will also have higher insurance rates than others, and areas with a high risk of theft will be considered higher-risk states than other locations.
Finally, an insurance company may raise the rates in a state where they have recently lost money in paying numerous claims following catastrophic weather events. Because all of these factors are outside of a driver’s control, it’s a good idea to focus on your own safe driving habits as a way to counteract the effects of geography and other situations.
Saving Money on Car Insurance
Insurance risk level is a fluid concept. All new drivers will begin as high-risk until they have proven that they have safe driving habits and are responsible with paying their premiums. Drivers can easily move from one category to another; high-risk drivers can focus on safe driving for several years to reduce their premiums, whereas a single at-fault accident can damage the driving record of preferred-risk drivers. It’s a good idea to strive for the lowest risk possible so that you can enjoy the widest selection of affordable insurance companies.
While you work on improving your driving record, you can reduce the cost of your insurance by taking defensive driving classes, installing anti-theft devices in your vehicle, purchasing multiple lines of insurance with a single carrier or reducing the amount of coverage on your policy. You can search for a new insurance company online by obtaining a free quote, or you can speak with your existing insurance company to see if there are any ways you can change your coverage to reduce the premiums.