10 Ways Auto Insurance Companies Try to Run You Over

Auto insurance could get pricey.

Author:: Brian O'Connell
Publish date:: Aug 3, 2017 5:42 PM EDT

Complaining about auto insurance (and the annoying ads and commercials that are part and parcel of it) is an American pastime. One legitimate auto insurance complaint rests on costs and how auto insurance companies arrive at those costs. Consequently, "job one" is knowing what factors go into auto insurance rate calculations, so you can get a better grip on what you're paying for insurance - and why.

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Your insurer thinks you drive more than you actually do, and that impacts your insurance costs. "When you first insure a car, your mileage is used to calculate how much you drive annually," says Stacy Wakefield vice president of Credit Sesame. "People who commute long distances each year are in a different, and more expensive rate class than drivers who use their car infrequently."

Auto insurance companies divide cities up into certain zones and use accident, vandalism and theft rates to put a price on your premium, says Wakefield. "Living a block from a busy intersection where crashes are frequent or in a neighborhood that had a rash of break-ins can affect your price greatly," she explains. "What you pay every six months in rural Illinois may be what you pay monthly in urban New Jersey."

This has nothing to do with the actual driver, but rather the cost to repair your specific make and model vehicle across the board, Wakefield explains. "If the company finds that there are more claims being made related to your type of vehicle and/or the cost to repair your type of vehicle rises, your premium will go up," she says. "This helps to explain the mystery of why some cars are more expensive to insure in red or black than in white."

Driving history is a very important factor in determining auto insurance rates, notes Joel Ohman, founder of the website CarInsuranceComparison.com. "For example, just try and add a teenage driver to your policy and see how that affects your rates," Ohman says. "Some companies go out of their way to price families with teenage drivers very affordably, even including things like discounts for good grades, while other companies are not at all interested in extending low priced coverage to new drivers so it can pay off handsomely to shop around when insuring a new teenage driver."

Another obvious yet important factor is the type of car being insured, says Jayson Greene, an auto insurance agent at Carolina Insurance Professionals. "A newer, more expensive car will likely have a much higher premium than an older car," says. "The cost to repair or replace a 2017 Mercedes will be much higher than the cost of a 2005 Toyota Camry, so that will be reflected in the premium."

A great way to protect your driving record is to avoid loaning your vehicle, says Nancy Thompson, operations and sales manager at Bunnell Hitchon Insurance Brokers, in Brantford, Ontario. "I always tell clients when they ask if they can loan their car to a friend, to remember that they are also loaning their insurance," she says. "If your friend is involved in an accident that is deemed their fault while driving your car, the claim is paid by your insurance company - not theirs, and the claim will follow your driving history. Often this is a costly favor."

A variation of driver history, your driving tendencies and habits (e.g. how fast you drive, how hard you hit the brakes, whether you use your blinker or not) are all factored into your auto insurance rates, thanks to telematics technologies. "With the introduction of telematics devices by many insurance companies, how and when you drive can now impact your insurance rates," says Thompson. The good news? By allowing an insurer to track your driving habits you can enjoy discounts of up to 30% on your auto policy. "Many insurers, if granted permission by the driver, track how quickly you accelerate, how hard you brake, what time of day you drive, low mileage and safe speeds," she says. But if you deny an insurer's request to track your driving, you'll lose those discounts.

Whether you're buying a new car, changing your policy, or switching insurance companies, maintaining continuous coverage is incredibly important because companies view drivers that are already insured as being financially responsible and therefore a lower risk, says Neil Richardson, licensed insurance agent at The Zebra, a car insurance comparison marketplace. "It doesn't matter if your coverage history is with different insurance companies, but it does matter how long you've been covered (rates generally drop at six months, one year, and three years," says Richardson. "Insurance companies consider a lapse in coverage -- even for a day -- as financially irresponsible behavior, so always make sure you're covered."

There's nothing you can do about this rating factor, but it's worth knowing, says Richardson. "Statistically, drivers get in fewer accidents the older they get and the more driving experience they gain - to a certain age, that is," he notes. "Teens pay the highest rates by far, and rates drop each year until age 60, when they start to increase slightly." Credit scores factor in as insurers benchmark them as a way to weight the probability of a claim - the lower the score, the higher the likelihood of a claim.

Insurance companies have found that married couples are statistically less risky to insure, because they are less likely to file a claim than single, divorced, separated, or widowed drivers, says Richardson. As for gender, "In most states, men pay slightly more for car insurance than women because men are statistically involved in more accidents than women - but not by much," he adds.Watch More with TheStreet:Jim Cramer Looks Back on His Epic 2007 Federal Reserve RantHow Well Do You Know Floyd Mayweather?What Jim Cramer Expects from Friday's Jobs ReportHappy National Watermelon Day! 3 Watermelon Recipes You Can't Resist

Your Driving Mileage

Your insurer thinks you drive more than you actually do, and that impacts your insurance costs. "When you first insure a car, your mileage is used to calculate how much you drive annually," says Stacy Wakefield vice president of Credit Sesame. "People who commute long distances each year are in a different, and more expensive rate class than drivers who use their car infrequently."