Car Insurance

How Is the Cost of Car Insurance Calculated?

How Is the Cost of Car Insurance Calculated?

Car insurance is a big part of your monthly budget. Understanding how it is calculated can help you estimate your costs and find an affordable policy that suits your needs.

The cost of car insurance varies widely depending on a number of factors. Here are some of the most common ones that influence your rates:


Age is one of the most important factors that insurance companies use to evaluate a driver’s risk. Young drivers and elderly drivers are considered high-risk because they are more likely to get in accidents or file expensive claims.

The cost of car insurance depends on your age and gender, but it can also be affected by your state, credit score, claim history, and other factors. Here are some averages that will help you understand how much your premium is likely to be for various types of coverage.

On average, young drivers pay the highest rates out of all demographics, despite the fact that they have less experience driving. However, as they gain more experience and fewer accidents, the costs of their car insurance go down.


When it comes to setting the cost of your car insurance policy, your gender plays a role. Traditionally, insurers have looked at whether you fit the profile of a high risk driver and adjusted your premium accordingly.

The cost gap between men and women starts early: By age 20 the difference in car insurance costs is typically the largest. It usually evens out by age 25, but that still doesn’t close the gender gap completely.

Gender is a broad term that can refer to how you express masculinity or femininity, or for most people some mix of the two. It also includes how your identity relates to that sense of gender.


The average car insurance policy includes liability coverage that pays for bodily injury and property damage you cause in a crash. It also typically includes collision and comprehensive deductibles at $500 each.

Liability coverage is essential for any driver, but it can also be the most expensive part of a policy. If you have a good driving record, your rate will be lower than that of a bad driver.

Insurers can also set rates based on the type of vehicle you drive. Luxury vehicles and custom-modified cars typically carry higher premiums.


Deductibles are the amounts you agree to pay out of pocket for a covered claim before your insurance policy pays its full amount. The deductible you choose directly impacts your premium and up-front costs, making them an important factor to consider when comparing car insurance policies.

MoneyGeek lists the average deductible as $500, but you can also select amounts like $250, $1000 or $2,000. If you aren’t sure which deductible amount is right for you, an agent can help you crunch the numbers and make a decision.

Some insurance companies offer a diminishing deductible option that reduces your deductible over time as you remain accident-free. This feature isn’t available in all states, but it could save you significant sums over the life of your policy.

Driving record

Your driving record is a key factor in your car insurance premium. It includes everything from traffic violations to DUI convictions.

Insurers use your driving history to assess how likely you are to file a claim and how much risk they believe you represent. This is why people with a bad driving history often pay more for their coverage than someone with a clean record.

Accidents and moving violations stay on your driving record for up to three years, depending on the state you live in. This means that even minor accidents can cause your rates to go up, but as long as you avoid new ones in the future, your insurance will eventually go down.