One expense you have control of in ways you never thought

By William Cowie

Published: Wednesday, June 18 2014 6:00 a.m. MDT

Along with age, insurance companies look at how many years you’ve been driving. Statistics prove that people who have driven longer file fewer claims. For that reason, it usually pays to keep your driver’s license current, even if you live somewhere like New York City or Chicago, where you many times don’t even need to own a car or drive. (Of course, you may need to have a driver’s license in America to write checks or buy stuff with plastic. Foreigners sometimes have a hard time figuring out how being able to pass a driving test qualifies you to write checks, but that’s a different story.)

Gender: Women pay less because:

  • They drive less
  • They get in fewer accidents
  • They get fewer speeding tickets
  • They get fewer DUI convictions
  • They buy safer cars
Please note: that’s not a personal judgment. Insurance companies agree that that’s what the numbers say.

Zip Code: Where you live affects your rates because the frequency of “risk events” varies greatly from neighborhood to neighborhood. These risk events include vandalism, theft of cars and/or contents, and fraudulent claims. Again, these are not Mark Cuban types of assessments; they’re conclusions drawn from statistical data. For this reason, it’s not uncommon for two identical people living just a few miles apart to have a difference of as much as 50 percent in their auto insurance rates.

So, if you’re considering moving, it might be a good idea to find out what the difference will be in your car insurance. You can get quotes from Esurance, Progressive, or other online insurance providers — or you can fill out a single form at Insurance.com and get free online quotes from a bunch of insurance companies any time you want to compare rates. (It’s pretty slick, but I digress.)

In general, it’s cheaper to insure cars in rural areas because they have less crime, less traffic and fewer accidents.

Credit history: You might not think paying your credit card bill late would increase your car insurance, but you would be mistaken. According to an insurance broker friend of mine, statistics show that people with bad credit file claims something like 40 percent more frequently than those with good credit. If you want to look into this, here’s an article about how and why your credit history affects your car insurance premiums.

Occupation: Again, statistics rule when it comes to insurance. Occupations like scientist, pilot, or actor/artist show lower claims and, therefore, have lower car insurance rates, generally speaking. Why? I want to say nobody really knows, but I’m sure somebody does. The most common explanation I’ve heard is that those occupations require attention to detail and being meticulous. In other words, those people are careful. That’s in contrast to occupations with high auto insurance rates, such as lawyers, business executives, judges and doctors. Apparently, the reason for that is the stress level that comes with jobs like those. (They say the rate for doctors isn’t much lower than for teens.) Real estate brokers also pay more because they have to drive more.

Marital status: Did you know married people get into fewer accidents than their unmarried counterparts? Insurance companies do, and that’s why they offer married people lower rates. In addition, insuring two cars with the same company usually will get you an additional multi-policy discount, much like the next criterion.

Homeownership: Insurance companies generally charge less for homeowners because they’re regarded as more stable. By itself, that’s not a significant factor, but the discount you get from combining your home and car insurance is.

The rest

The other basic factors determining your auto insurance rates are:

  • Your driving record (accidents, tickets, etc.) and claims history
  • The coverage you’re looking for (pretty obvious)
  • Your vehicle
The impact of your vehicle selection is not obvious, so it’s not simply that a more expensive car will carry a higher insurance premium. In fact, as pointed out above, a Tahoe costs less to insure than a Corolla.

Chances are that if you’re concerned with getting rich slowly, you will have a good (or at least improving) credit record, and you’ll be on the positive side of many of the variables listed above. But now you know exactly how those factors can lead to savings on your auto insurance, the third largest expense of car ownership.

How have you gone about lowering your car insurance premiums?

William Cowie spent 30 years in senior management (CFO/CEO) before retiring. He now writes about personal finance for many personal finance blogs, including Get Rich Slowly.

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