Insurance Rate Factors
How do insurance companies determine your rates? It depends on the type of insurance you're shopping for, your desired coverage levels and a number of other factors.
Here are a few insurance rate basics:
Insurance Rates Vary Widely By Company
- Auto: Auto insurance rates are determined primarily by your coverage amounts and deductibles, your ZIP Code, your vehicle's value and your driving record. Keep in mind that standard auto insurance policies include several different types of coverage, including liability, comprehensive, collision and others. To effectively compare rates from different providers, it helps to learn more about the different parts of your car insurance policy.
- Health: Health insurance rates for individual health insurance policies are determined primarily by the type of plan you're considering and your age and medical history. Other important factors include your occupation, whether or not you smoke, and your height and weight. There are a wide variety of individual health insurance policies out there and rates tend to vary significantly from one option to another.
- Home: The most important factors used to determine your home insurance rates are your deductible, your home's location and its structural details—square footage, roof type, foundation type, etc. If your home has a history of previous claims, companies will factor that into their rate calculations as well. Note: Your home's market value does not affect your home insurance rates. Insurance companies consider the costs to repair or replace your home, not what it's "worth" to another buyer.
- Term Life: Insurers determine term life insurance rates using information very similar to what they use to determine health insurance premiums. Age and medical history are the most important, followed by smoking status, height, weight and other details. Term life insurance offers the lowest rates and is generally considered the simplest form of life insurance. "Universal" or "whole" life insurance policies have an investment aspect and are often more expensive.
- Renters: To calculate renters insurance rates, companies consider your ZIP Code and the types and amounts of coverage you're looking for. Standard renters insurance provides protection for your personal property—clothing, furniture, electronics, etc.—as well as liability protection. Renters insurance is one of the most affordable types of insurance you can buy, with standard coverage usually starting around $15 per month.
Insurance rates vary—sometimes significantly—from one company to another. That's why shopping around and comparing insurance rates is so important. If you don't shop around, you won't know if you're paying too much.