ABA Family Legal Guide

Automobiles

Accidents and Insurance

Insurance

How are auto insurance rates determined?

A classification system based on objective criteria helps actuaries to determine the risk of an accident and thereby set the varying rates that drivers pay. Criteria include your age, sex, marital status, and geographic location; the age, make, and model of the car; and the car's primary use (cars used for recreation are statistically less likely to be involved in an accident than a vehicle used for commuting). In some states, the insurance rates are set by the state's insurance commission, which regulates insurance companies.

If you have been involved in several accidents over a short period of time, you are a high risk, so insurance companies would add a surcharge to the basic premium you pay. On the other hand, insurance carriers might offer safety discounts if your vehicle is equipped with automatic safety belts, antilock brakes, or air bags. Insurance companies will offer other types of discounts as well, such as for being a senior citizen or a good student, joining a car pool, or insuring multiple vehicles with the same carrier.

A deductible is the amount that you agree to pay in the event that you make a claim. The higher the deductible you choose, the lower your annual insurance premium. But if you select a high deductible, you'll need more cash on hand if you have an accident. Typical deductibles are $50, $100, $250, and $500.