It helps to understand how an automobile insurer determines your premium charges. This will make you more aware of the cost of some coverage options and the impact that discounts have on your final premium.

The base rate for a specific coverage and territory is taken from the insurer’s rate manual. The base rate is justified by an insurer in a rate filing sent to the State Department of Banking and Insurance based mostly upon the insurer’s past premium, accident, loss and expense statistics.

The State Department of Banking and Insurance regulates the rates that automobile insurers can charge. Rates cannot be excessive so that an insurer can earn unreasonable profits. Conversely, rates cannot be inadequate, which means an insurer must have enough money to pay claims and cover expenses.

The base rate may be multiplied by an increased limits factor. If you want a higher limit of protection than is mandated by State law, an increased limits factor would apply. Benefit from cheap car insurance from the leading car insurance companies.

The base rate is then multiplied by a classification (or class) factor. The class factor considers age, sex, marital status, distance driven to work or school, driver training and good student discounts. Classifications that statistically have a higher propensity for accidents result in higher class factors
being assigned.

The base rate is then multiplied by any applicable discounts; for example, a discount for an air-bag, anti-theft devices, or other safety devices. This is done because safety features tend to reduce both the number of accidents (claims frequency) and/or the amount paid out in accidents (claims severity).

Not all discounts apply to all coverages. For example, an anti-theft device may make it less likely that your car would be stolen. Therefore, you receive a discount on your “comprehensive” coverage premium. You would not receive a discount for an anti-theft device on your “combined single limit” premium since the anti-theft device doesn’t reduce the chances of you’re injuring someone else in an accident or lessen the degree of an injury if it were to occur.

A Tier Rating Factor is then applied. This factor, which is a 1.00 if you are rated at the standard tier level, is meant to reflect such risk characteristics as driving record, past at-fault accidents or other characteristics that are statistically proven to be related to a driver’s probability of being involved in a future claim. For example, statistics show that drivers with at-fault accidents in the recent past are much more likely to have another at-fault accident in the near future than drivers with no at-fault accidents in the recent past.

Drivers that are inexperienced tend to cause more claim payments than drivers that have more driving experience.

An expense fee is then added to the resulting premium after the multiplication steps are completed. This is because there are expenses associated with policy issuance that do not vary by territory or classification.

One of the factors insurance companies use to determine the amount you must pay for your auto insurance coverage is the Rating Territory in which you live. Generally, areas with higher traffic density generate premium charges that are higher than areas with less traffic density. Almost all auto insurance companies use the same territorial listing in determining premium charges.

A rating territory is a geographically defined area of the state used for automobile insurance rating purposes.

In the next section we’ll show you some rating examples that show the impact of where you live on your auto insurance premiums. There are a lot of factors that go into deciding where to live. The amount that you pay for auto insurance usually isn’t one of them. But it doesn’t hurt to understand how the location of your home impacts the amount you pay for auto insurance.

When deciding on where to move, maybe you should look at it the same way you look at property taxes. In certain municipalities property taxes are more, in certain municipalities they are less. Find free auto insurance quotes for your state fast.

There will be some rating examples in the next section showing the impact of territories on your auto insurance premiums.