How does the insurance company determine my premium?

Many drivers want to know, "How do insurance companies determine my premium for car insurance quotes?" Insurance companies use formulas based on personal data to determine rates. Drivers who ask, "How can I buy car insurance and determine my premium will stay low?" should follow safe driving practices and use discounts.

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Chris Tepedino is a feature writer that has written extensively about home, life, and car insurance for numerous websites. He has a college degree in communication from the University of Tennessee and has experience reporting, researching investigative pieces, and crafting detailed, data-driven features. His works have been featured on CB Blog Nation, Flow Words, Healing Law, WIBW Kansas, and C...

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...

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Reviewed by Laura Walker
Former Licensed Agent

UPDATED: Jan 4, 2022

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The Rundown

  • Drivers must provide personal information to receive an accurate rate quote
  • Drivers who submit their information to an insurance company are put through an underwriting process
  • Insurance companies all have their own rate calculation formulas but most require the same basic information to start a quote

When hunting down cheap car insurance, “How do insurance companies determine my premium for car insurance quotes?” is a common question drivers ask themselves, and it’s a very good question too.

Unfortunately, you can’t just tell a car insurance company to “Determine my premium is the cheapest!” However, understanding the insurance industry basics of how to calculate premium payments for drivers will take you one step closer to getting the insurance you need at the price you want.

If you want to find the cheapest car insurance quotes available, you can do so with the click of a button.

Enter your ZIP code and start comparing free quotes if you want to know, “How do insurance companies determine my premium?”

How do insurance companies calculate premiums?

If you were to enter a search for “how to calculate insurance premium formula” into your search engine, you would be met with a variety of results. Simply put, each insurance company has its own approach on how to calculate premium percentages.

Now, all insurance companies do use a combination of mathematical calculation and statistics in order to ascertain what a driver should pay for insurance, and there are common factors that feed into those calculations.

Most people are very familiar with their insurance agent, but not many drivers are aware of the existence of insurance underwriters or how these individuals affect their insurance rates.

While an insurance agent can help you navigate the ins and outs of making a claim or adjusting your policy, underwriters work directly with the company’s rate calculation system.

Underwriters evaluate the risk associated with each driver, and whenever you apply for a quote from a new insurance company, your personal information undergoes the underwriting process so your risk level can be assessed.

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What information do insurance companies need to calculate rates?

When drivers apply for a quote, an insurance company typically needs basic information before it can produce an accurate rate. If you want to know how to calculate premiums in general, insurance companies usually need to know:

  • Your age
  • When you got your license
  • Your driver’s license number
  • The make and model of your vehicle
  • The age of your vehicle
  • Your address
  • If you had any recent claims

While this information, you can fill into a quote directly, insurance companies will also examine your motor vehicle report (MVR) to determine if you have any recent driving violations on your record. Answering a few key questions can get you quotes. But underwriters will request a complete application before they issue the policy.

Insurance companies will frequently run a soft check on your credit to discover your credit score. Some states have outlawed the practice of using your credit score to set insurance premiums. If you want to have a better idea of what you may pay for car insurance, just take a look at this chart to discover what rates are being offered by major insurance companies in your state:

Average Car Insurance Rates by State and Company

StateAverage by StateAllstateAmerican FamilyFarmersGEICOLiberty MutualNationwideProgressiveState FarmTravelersUSAA
Alabama$3,566.96$3,311.52-$4,185.80$2,866.60$4,005.48$2,662.66$4,450.52$4,798.15$3,697.80$2,124.09
Alaska$3,421.51$3,145.31$4,153.07-$2,879.96$5,295.55-$3,062.85$2,228.12-$2,454.21
Arizona$3,770.97$4,904.10-$5,000.08$2,264.71-$3,496.08$3,577.50$4,756.25$3,084.74$3,084.29
Arkansas$4,124.98$5,150.03-$4,257.87$3,484.63-$3,861.79$5,312.09$2,789.03$5,973.33$2,171.06
California$3,688.93$4,532.96-$4,998.78$2,885.65$3,034.42$4,653.19$2,849.67$4,202.28$3,349.54$2,693.87
Colorado$3,876.39$5,537.17$3,733.02$5,290.24$3,091.69$2,797.74$3,739.47$4,231.92$3,270.77-$3,338.87
Connecticut$4,618.92$5,831.60--$3,073.66$7,282.87$3,672.34$4,920.35$2,976.24$6,004.29$3,190.00
Delaware$5,986.32$6,316.06--$3,727.29$18,360.02$4,330.21$4,181.83$4,466.85$4,182.36$2,325.98
District of Columbia$4,439.24$6,468.92--$3,692.81-$4,848.98$4,970.26$4,074.05-$2,580.44
Florida$4,680.46$7,440.46--$3,783.63$5,368.15$4,339.60$5,583.30$3,397.67-$2,850.41
Georgia$4,966.83$4,210.70--$2,977.20$10,053.44$6,484.90$4,499.22$3,384.88-$3,157.46
Hawaii$2,555.64$2,173.49-$4,763.82$3,358.86$3,189.55$2,551.83$2,177.93$1,040.28-$1,189.35
Idaho$2,979.09$4,088.76$3,728.79$3,168.28$2,770.68$2,301.51$3,032.19-$1,867.96$3,226.29$1,877.61
Illinois$3,305.48$5,204.41$3,815.31$4,605.20$2,779.16$2,277.65$2,711.81$3,536.65$2,344.88$2,499.76$2,770.21
Indiana$3,414.97$3,978.81$3,679.68$3,437.55$2,261.07$5,781.35-$3,898.00$2,408.94$3,393.75$1,630.86
Iowa$2,981.28$2,965.86$3,021.81$2,435.72$2,296.16$4,415.28$2,735.44$2,395.50$2,224.51$5,429.38$1,852.57
Kansas$3,279.62$4,010.23$2,146.40$3,703.77$3,220.65$4,784.42$2,475.59$4,144.38$2,720.00$4,341.43$2,382.61
Kentucky$5,195.40$7,143.92--$4,633.59$5,930.97$5,503.23$5,547.63$3,354.32$6,551.68$2,897.89
Louisiana$5,711.34$5,998.79--$6,154.60--$7,471.10$4,579.12-$4,353.12
Maine$2,953.28$3,675.59-$2,770.15$2,823.05$4,331.39-$3,643.59$2,198.68$2,252.97$1,930.79
Maryland$4,582.70$5,233.17--$3,832.63$9,297.55$2,915.69$4,094.86$3,960.87-$2,744.14
Massachusetts$2,678.85$2,708.53--$1,510.17$4,339.35-$3,835.11$1,361.86$3,537.94$1,458.99
Median$3,660.89$4,532.96$3,698.77$3,907.99$3,073.66$5,295.55$3,187.20$3,935.36$2,731.48$3,729.32$2,489.49
Michigan$10,498.64$22,902.59-$8,503.60$6,430.11$20,000.04$6,327.38$5,364.55$12,565.52$8,773.97$3,620.00
Minnesota$4,403.25$4,532.01$3,521.29$3,137.45$3,498.54$13,563.61$2,926.49-$2,066.99-$2,861.60
Mississippi$3,664.57$4,942.11--$4,087.21$4,455.94$2,756.53$4,308.85$2,980.48$3,729.32$2,056.13
Missouri$3,328.93$4,096.15$3,286.90$4,312.19$2,885.33$4,518.67$2,265.35$3,419.14$2,692.91-$2,525.78
Montana$3,220.84$4,672.10-$3,907.55$3,602.35$1,326.11$3,478.26$4,330.76$2,417.74-$2,031.89
Nebraska$3,283.68$3,198.83$2,215.13$3,997.29$3,837.49$6,241.52$2,603.94$3,758.01$2,438.71-$2,330.78
Nevada$4,861.70$5,371.62$5,441.18$5,595.56$3,662.09$6,201.55$3,477.14$4,062.57$5,796.34$5,360.41$3,069.07
New Hampshire$3,151.77$2,725.01--$1,615.02$8,444.41$2,491.10$2,694.45$2,185.46-$1,906.96
New Jersey$5,515.21$5,713.58-$7,617.00$2,754.94$6,766.62-$3,972.72$7,527.16$4,254.49-
New Mexico$3,463.64$4,200.65-$4,315.53$4,458.30-$3,514.38$3,119.18$2,340.66-$2,296.77
New York$4,289.88$4,740.97--$2,428.24$6,540.73$4,012.93$3,771.15$4,484.58$4,578.79$3,761.69
North Carolina$3,393.11$7,190.43--$2,936.69$2,182.71$2,848.03$2,382.61$3,078.65$3,132.66-
North Dakota$4,165.84$4,669.31$3,812.40$3,092.49$2,668.24$12,852.83$2,560.35$3,623.06$2,560.53-$2,006.80
Ohio$2,709.71$3,197.22$1,515.17$3,423.01$1,867.19$4,429.74$3,300.89$3,436.96$2,507.88$3,135.16$1,478.46
Oklahoma$4,142.33$3,718.62-$4,142.40$3,437.34$6,874.62-$4,832.35$2,816.80-$3,174.15
Oregon$3,467.77$4,765.95$3,527.28$3,753.52$3,220.12$4,334.55$3,176.83$3,629.13$2,731.48$2,892.19$2,587.15
Pennsylvania$4,034.50$3,984.12--$2,605.22$6,055.20$2,800.37$4,451.00$2,744.23$7,842.47$1,793.37
Rhode Island$5,003.36$4,959.45--$5,602.63$6,184.12$4,409.63$5,231.09$2,406.51$6,909.45$4,323.98
South Carolina$3,781.14$3,903.43-$4,691.85$3,178.01-$3,625.49$4,573.08$3,071.34-$3,424.77
South Dakota$3,982.27$4,723.72$4,047.47$3,768.80$2,940.29$7,515.99$2,737.66$3,752.81$2,306.23--
Tennessee$3,660.89$4,828.85-$3,430.07$3,283.42$6,206.69$3,424.96$3,656.91$2,639.30$2,738.52$2,739.28
Texas$4,043.28$5,485.44$4,848.72-$3,263.28-$3,867.55$4,664.69$2,879.94-$2,487.89
Utah$3,611.89$3,566.42$3,698.77$3,907.99$2,965.57$4,327.76$2,986.57$3,830.10$4,645.83-$2,491.10
Vermont$3,234.13$3,190.38--$2,195.71$3,621.08$2,128.21$5,217.14$4,382.84-$1,903.55
Virginia$2,357.87$3,386.80--$2,061.53-$2,073.00$2,498.58$2,268.95-$1,858.38
Washington$3,059.32$3,540.52$3,713.02$2,962.00$2,568.65$3,994.73$2,129.84$3,209.52$2,499.78-$2,262.16
West Virginia$2,595.36$3,820.68--$2,120.80$2,924.39--$2,126.32-$1,984.62
Wisconsin$3,606.06$4,854.41$1,513.27$3,777.49$3,926.20$6,758.85$5,224.99$3,128.91$2,387.53-$2,975.74
Wyoming$3,200.08$4,373.93-$3,069.35$3,496.56$1,989.36$3,187.20$4,401.17$2,303.55-$2,779.53
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Due to the intensity that insurance companies use to try and make each policy reflective of an individual driver, the car insurance for marketing and advertising professionals could be the same or even more expensive than the insurance for drivers who work traditional blue-collared jobs.

How can drivers obtain cheap insurance?

After learning all this, you may now be wondering, “What can I do to determine my premium makes affordable car insurance attainable?” Luckily, there is quite a bit that you can do to take charge of your insurance rates.

Practicing safe driving habits is the best way to keep your rates low, but if you have a low credit score, you can work on improving that as well. Not only will that help you get your finances in order, but you’ll be able to score cheaper rates on your insurance too.

If you’re still wondering, “How can I determine my premium or car insurance rates stay low?” you can rest easy. Most insurance companies offer a plethora of discounts to their drivers.

Whenever you think your rates are getting too high, examine this list of discounts by top insurance companies:

Car Insurance Discounts By Company

Auto Insurance DiscountsAllstate (%)American Family (%)Farmers (%)GEICO (%)Liberty Mutual (%)Nationwide (%)Progressive (%)State Farm (%)Travelers (%)USAA (%)
Adaptive Cruise ControlN/AN/AN/AN/A5N/AN/AN/A
Adaptive HeadlightsN/AN/AN/A5N/AN/AN/A
Anti-lock Brakes5555
Anti-Theft25202515
Claim Free2610152312
Continuous CoverageN/AN/AN/A15N/A
Daytime Running Lights155N/A
Defensive Driver105105103
Distant StudentN/A107x
Driver's Ed10N/A101583
Driving Device/AppN/A30402050305
Early SigningN/A8N/A1012
Electronic Stability ControlN/A5N/AN/AN/A
Emergency DeploymentN/AN/AN/A25N/AN/AN/AN/AN/AN/A
Engaged CoupleN/AN/AN/AN/AN/AN/AN/AN/AN/AN/A
Family LegacyN/AN/AN/AN/AN/AN/A10
Family PlanN/AN/AN/A25N/AN/AN/AN/A
Farm VehicleN/AN/AN/AN/AN/AN/AN/A
Fast 5N/AN/AN/AN/AN/AN/AN/AN/AN/AN/A
Federal EmployeeN/AN/A810N/AN/AN/AN/AN/A
Forward Collision WarningN/AN/AN/AN/A5N/AN/AN/A
Full PaymentN/A$5N/AN/A7.5N/A
Further EducationN/AN/AN/A1015N/AN/AN/A
Garaging/StoringN/AN/AN/AN/AN/AN/AN/A90
Good CreditN/AN/AN/AN/AN/A
Good Student1522.5102583
Green VehicleN/A5N/A10N/AN/AN/A10N/A
HomeownerN/AN/A535N/A
Lane Departure WarningN/AN/AN/AN/AN/AN/AN/A
Life InsuranceN/AN/AN/AN/AN/AN/AN/AN/A
Low Mileage30
LoyaltyN/AN/AN/A5N/AN/A
MarriedN/AN/AN/AN/AN/A
Membership/GroupN/AN/AN/A107N/AN/AN/A
MilitaryN/A154N/AN/AN/A
Military GaragingN/AN/AN/AN/AN/AN/AN/AN/AN/A15
Multiple DriversN/AN/AN/AN/AN/AN/AN/AN/AN/AN/A
Multiple Policies1029102010121713
Multiple Vehicles25102010208
New AddressN/AN/AN/AN/A5N/AN/AN/AN/AN/A
New Customer/New PlanN/AN/AN/AN/AN/AN/AN/AN/AN/A
New GraduateN/AN/AN/AN/A5N/AN/AN/AN/AN/A
Newer VehicleN/AN/A401012
Newly LicensedN/AN/AN/AN/A5N/AN/AN/AN/AN/A
NewlywedsN/AN/AN/AN/A5N/AN/AN/AN/AN/A
Non-Smoker/Non-DrinkerN/AN/AN/AN/AN/AN/AN/AN/AN/AN/A
Occasional OperatorN/AN/AN/AN/AN/AN/AN/AN/AN/A
OccupationN/A1015N/AN/AN/A
On-Time PaymentsN/AN/AN/AN/AN/AN/AN/A15N/A
Online ShopperN/AN/AN/AN/AN/AN/A7N/AN/AN/A
Paperless DocumentsN/AN/A5$50N/AN/AN/A
Paperless/Auto BillingN/A$30$233
Passive Restraint402040
Recent RetireesN/AN/AN/AN/A4N/AN/AN/AN/AN/A
RenterN/AN/AN/AN/AN/AN/AN/AN/AN/AN/A
Roadside AssistanceN/AN/AN/AN/AN/AN/AN/AN/AN/AN/A
Safe DriverN/AN/A15N/A3531152312
Seat Belt UseN/AN/AN/A15N/AN/AN/AN/AN/AN/A
Senior DriverN/AN/AN/AN/AN/AN/AN/A
Stable ResidenceN/AN/AN/AN/AN/AN/AN/AN/A
Students & AlumniN/AN/A107N/AN/AN/AN/A
Switching ProviderN/AN/A10N/AN/AN/AN/A
Utility VehicleN/AN/AN/AN/AN/AN/AN/A
Vehicle Recovery1535255
VIN EtchingN/AN/AN/A5N/A
VolunteerN/AN/AN/AN/AN/AN/AN/AN/AN/A
Young DriverN/AN/AN/AN/AN/AN/AN/A$75

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Using this list during your next policy renewal will help you secure great rates all year long.

Determining Car Insurance Premiums: The Bottom Line

Car insurance companies calculate rates during the underwriting process.

While each company uses its own set of statistics and variables to determine a driver’s risk level, nearly every insurance company will need drivers to provide personal information like their driver’s license number and address in order to provide an accurate rate.

Now, how can I buy car insurance and determine my premium will stay low? The answer is simple. Follow the rules of the road to avoid causing an accident and take advantage of the discounts that your insurance has available.

If you’ve ever wondered, “How do insurance companies determine my premium?” enter your ZIP code to compare free quotes from companies in your city today.

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