Auto Insurance Basics

Car insurance (also referred to as auto insurance, vehicle insurance, or motor insurance) is insurance coverage purchased to protect against loss due to an accident (property damage or liability) with another vehicle or natural perils as well as theft.

In the U.S., auto insurance is required in most states though actual enforcement varies. Penalties for not carrying auto insurance vary, but often involve some combination of a monetary fine, license suspension or revocation, as well as potential jail time. See our state-by-state breakdown of auto insurance requirements for more details.

Basics of Auto Insurance Rate Calculations

Depending on the state, your insurance premiums can be either calculated based on government mandates or using underwriting guidelines set forth by the state’s department of insurance.

In most cases, where premiums are not mandated, they are usually derived based on historical data. Among other items, premiums can vary based on the type of car to be insured, coverages selected, driver demographics, and car utilization.

Driver Demographics

Young drivers with no driving record will experience higher auto insurance rates. However, many insurers offer discounts to students that excel in the classroom. Once a driver reaches 25, their premiums should start to decline a bit assuming their driving record remains clean. Older drivers are often eligible for discounts too especially if they are retired, since the insurer assumes they won’t be driving quite as much.

In general, men drive more than women which translates into a higher accident rate. So when comparing otherwise similar driver profiles, an insurance company is likely to charge a man more premium than a woman.

Those drivers who are unmarried are normally charged higher auto insurance rates than their married counterparts.

Vehicle Characteristics

Naturally, classic cars and sports cars would command higher auto insurance rates than compact cars, or other safety rated sedans.

Distance Driven

Some insurers calculate premiums based on distances driven. In most cases, the insurer relies on a good faith estimate provided by the insured. Others base their rates on actual odometer figures. A relatively new twist some insurance companies are adopting is to provide the driver a GPS device to track driving mileage.