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Americans confused on what factors affect -- and don't affect -- their car insurance rate

Many Americans are confused about which factors car insurance companies consider when deciding how much to charge new and existing policyholders, new surveys show.

Two surveys, each of about 1,000 U.S. adults, conducted for in April by Princeton Survey Research Associates International, found that Americans are confused about whether insurers take into account factors such as gender, residence ZIP code and income when setting premiums for a driver.

car insurance rate factors

Here's what Americans got wrong about factors that affect car insurance rates, according to the survey:

  • Sixty-three percent either believe or don't know if employment status affects how much you pay. In general, being unemployed plays no role or an insignificant role in setting car insurance rates.
  • Only 54 percent know gender affects your car insurance premium. And only 1 in 4 know a 20-year-old man would pay more than a woman of the same age. (In fact, his rates are about 25 percent higher.)
  • Forty-two percent of Americans don't believe or don't know marital status affects how much you pay for car insurance. (It does, and married policyholders get lower rates.)
  • Only 53 percent of Americans know owning a home factors into how much you pay.
  • Thirty-three percent of those surveyed don't know credit history affects your insurance rate.
  • Thirty-seven percent either are unsure or don't believe insurers factor where you live when determining rates.

However, most Americans (88 percent) know age is a factor in setting car insurance rates, and 84 percent know insurers consider the make and model of the vehicle.

"There are more different risk factors than there were a decade ago because insurance companies have gotten more sophisticated at determining risk," says Carole Walker, executive director of the Rocky Mountain Insurance Information Association, an insurance education and advocacy organization.

What factors affect car insurance rates?

Car insurance companies use their own claims data, collected over many years, to figure out how driver characteristics affect risk, says Jeanne Salvatore, senior vice president and chief communications officer for the Insurance Information Institute, an organization dedicated to increasing public understanding of insurance.

"All these factors are based on actual claims experience," Salvatore says.

There's a caveat about using different factors to set rates, though: "Some of it does depend on the state where you live," Walker says, adding that insurance is regulated at a state level.

Here are seven questions insurers typically consider when setting a driver's rate.

1. How old are you?

Age is one of the most important considerations, experts say. "If you're a 16-year-old driver, you're in the highest-risk category out there," Walker says. How long you've been driving is a related factor insurers consider, Salvatore says. And 83 percent of Americans know experience behind the wheel counts, the survey found.

2. Are you male or female?

Gender is another major factor in car insurance rates, and many Americans think that this practice is unfair -- 43 percent said charging young men the highest rates is discrimination. However, a few states -- including Hawaii and Montana -- don't allow car insurers to consider gender, Walker says.

3. What's your credit history?

Poor credit can nearly double your insurance rates, while so-so credit can increase them by about 25 percent over what you’d pay if you had excellent credit, according to a 2013 study. "As a group, people with better credit get into fewer and less severe accidents than those with poor credit," Salvatore says, adding that each insurer will take raw data from your credit history and use its own methods to create an insurance credit score for you.

Big red flags include bankruptcies, lots of late payments or a canceled credit card account, Walker says.  However, three states – California, Massachusetts and Hawaii – don’t permit insurers to use credit as a factor in car insurance rates, according to the nonprofit consumer advocacy group United Policyholders.

4. Are you single or married?

Auto insurance applications typically ask for your marital status. Married drivers tend to drive more safely, Salvatore says. "Your typical young married person isn't going to be racing around town -- they're going to be carefully driving their wife or their children," she says.

5. Where do you live?

Your address plays a big role in your rate, Walker says. “If you live in an area with high crime, extreme weather (such as hail or tornadoes), or a high accident rate, you’ll pay more for car insurance," she says.

6. What kind of car do you drive?

"If it's an expensive car, it's often going to cost more to insure," Salvatore says. "The safety record, how often it's stolen -- all those things factor in." The National Highway Traffic Safety Administration offers a theft database that can be searched by vehicle make and year.

7. What's your education level?

More than half of the survey respondents said they don't believe education level affects your rate. In fact, it can, depending on the state and the insurer, Walker says.

What factors DON'T affect car insurance rates?

On the flip side, here are factors that don’t affect your car insurance rates.

How much you earn: Forty-three percent of those surveyed wrongly believe income affects how much you pay for car insurance.

Retirement savings: Thirty-four percent of Americans either didn’t know or incorrectly said retirement savings affects how much you pay.

How to save money and pay less for car insurance

While there are certain factors you can't do anything about, such as your age or gender, there are plenty of things you can do to get a better rate, experts say. Here are some tips:

1. Strive for a good driving record.

People with clean driving records pay less than those with speeding tickets, accidents or drunken driving convictions. In fact, your driving record affects your auto insurance rate more than any other factor, Salvatore says. So, drive carefully -- or, if your record has dings on it, take a driving education class, she recommends. Many insurers offer discounts if you take a class, she adds.

2. Consider pay-as-you drive insurance.

You can't change your age or gender to save on insurance, but young drivers and men who drive very little, don't drive much during riskier times like late night, and are careful drivers might benefit from usage-based insurance, Walker says. Many insurers offer pay-as-you-drive programs to reward safe drivers with discounts.

3. Improve your credit score.

If your credit is shaky, work on improving it, Walker says. For example, pay bills on time and pay down debt to improve your debt-to-credit ratio (the amount of debt you have compared to your available credit).

4. Hunt for discounts.

All drivers should ask their insurers what discounts are available, Salvatore says. And young drivers who want to offset the higher rates they pay due to age should ask about good-student discounts or price breaks for completing a teen safe-driver course, Walker says.

5. Consider a safer car.

If you're shopping for a new car, look at its safety features and the cost to insure that make and model, Salvatore says.

6. Shop around.

Rates vary by company, so it pays to comparison shop. It’s a good idea to get at least three quotes and to consider other factors such as customer service and coverage options, Walker says. "Unless you have a terrible driving record -- you've been convicted of drunk driving and speeding and you drive a sports car -- you're going to have a lot of choice," Salvatore says, adding that insurance is a highly competitive industry.

Savvy consumers should shop and compare insurance quotes at least once a year to make sure they're getting the best deal and never overpay for auto coverage. 

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