Have you ever wondered how insurance companies determine the premium for your auto insurance? Insurance is often costly, so it’s good to know what you can do to lower your rates. Understanding the reasoning for your insurance company's calculations could save you money.

Age Matters When You Buy Insurance

Whether it seems fair or not, your age matters when you buy auto insurance. More accurately, it is inexperience that drives up your premiums. Drivers under 25 pay the highest premiums because of their limited time behind the wheel. Even older people new to driving pay higher rates. Insurance companies also increase premiums significantly when a seasoned driver, such as a parent, tacks an inexperienced child onto their existing policy. It’s all about how much time the driver has had on the road.

Insurers keep accurate statistics on the number of accidents and claims made each year and the age of the people who make these claims. According to the National Highway Traffic Safety Administration, traffic crashes are the leading cause of death for young drivers in the United States, and most are because of alcohol. Insurers view driving experience and maturity as markers for the likelihood of a claim and because of this, premiums drop significantly after age 25.

Many states offer a discount after completion of a driving course from an accredited driving school. Even though this may seem like an unnecessary expense, defensive driving techniques are lifesavers and you recoup the fee quickly through lower premiums.

Sorry Guys, You Pay More

Young male drivers pay more than female drivers because of their history of claims. They have nearly double the rate of accidents causing death compared to females and more than double the fatal accidents involving alcohol.

Statistics do not provide the reasons why such a huge difference exists between genders, but the difference affects premiums. Young male drivers' statistics indicate riskier driving habits, which results in more claims. Even if you are a safe driver, you will pay more as a result of the group to which you belong.

Your Driving Record Counts

Your driving history has much to do with your premiums too. Insurance companies use your driving record to assess your driving ability and level of risk. Multiple accidents, particularly when you are at fault, drive up your premiums because you are a higher risk according to insurers. Your insurance company also takes note of traffic tickets against your license. This indicates that your driving is riskier than other drivers, and will mean higher insurance premiums.

If your state insists that you get an SR-22, your premiums will definitely increase. An SR-22 is a vehicle liability insurance document required by most state Department of Motor Vehicles (DMV) offices for drivers who are considered "high risk." You need an SR-22 if you've had a DUI, DWI or a serious moving violation. They are also needed if you had an accident while driving without insurance or a license. You may also need an SR-22 if you have many traffic offenses or many tickets in a short period of time.

The problem with an SR-22 is that you have to get your insurance first before the state will permit you to drive again. Naturally, all insurance companies will look at you as a riskier driver and their rates will reflect this for at least three years.

Make & Model Matter

Most people believe that a newer car costs more than an older one to insure, but this isn’t necessarily true. Insurance companies use many factors to determine your premium and the make and model have greater bearing than the year of manufacture. There are several reasons why make and model take precedence.

First off, particular models attract particular types of drivers. There is a heck of a difference between someone who drives a minivan and someone who drives a sports car. Insurance rates are always based on risk so even if a sports car is older, the driver may pay more than the minivan driver.

Another reason that the make and model is important to insurers is because of theft. Thieves steal some vehicles more often than others. It might surprise you to know that the most desirable vehicles for thieves are not BMWs and Mercedes, but older Accords, Civics, Camrys and F-150 pickups. If you happen to drive a vehicle on the "most stolen" list, you will pay more.

Of course, safety is a big concern for insurance companies too. Newer cars are better at withstanding crashes because they have technologies such as passenger air bags that don’t exist on older models. Some have services like OnStar that actually track driver safety so companies can match their rates accordingly. Many models have so many safety features for which insurance companies provide a discount, instead of higher premiums.

Finally, vehicle repair costs vary. Parts for an older car can be difficult to find and more expensive to replace. Imports may cost more to fix than domestics, and luxury car repairs could exceed the cost of a brand new budget car replacement. This factors into insurance rates on a particular vehicle as well.

Where You Live Affects Premiums

Insurance companies base premiums for your vehicle insurance on where you live. Some areas are more susceptible to crime and accidents than others. Living in urban and higher crime areas has a definite impact on your risk of theft. Port and border cities have the highest incidence of theft. California has the most thefts of any state and the city of Modesto the highest in the country. The lowest is in Virginia Beach, Virginia.

Accidents and deaths vary by location too. According to the Insurance Institute of Highway Safety, the District of Columbia has the lowest traffic-related death rate while Montana has the highest.

Naturally, insurance companies take this information into account when they calculate premiums. You aren’t likely to move for lower insurance rates, but even changes from one ZIP code to another can affect rates. Urban areas typically have higher rates of accidents, theft, and vandalism than rural areas.

If you live in the suburbs, your rates may be higher because you drive more. If your commute is more than 50 miles a day your premium will probably be higher than someone who works close to home. More miles means more risk.

It may seem like no matter which way you look at it, your insurance will cost you more, but discounts are available through many insurance companies too. We mentioned that insurers may cut your premiums if you have a new vehicle loaded with safety features, but many other programs exist as well. When you are shopping for the best rate, be sure to ask if the company offers discounts for loyalty or safe driving. Many companies also offer discounts for government employees and members of the military. Check it out. After all, even small savings count.