An insurance company is a business. As such, it wants to earn as much profit as possible. When you purchase a car insurance policy, you are buying financial protection against the costs, or a portion of them as spelled out in the policy, if you are involved in an accident. The company essentially gambles that you will never make a claim against your insurance and all your payments will turn into their profit.
Car insurance companies use statistics collected by the government and by their own studies to determine each driver’s risk, or how likely you are to be in an accident as a driver. The greater your risk to the insurer, the more they charge for your insurance. They use factors such as a driver’s age, gender, and driving record to decide who is most likely to be involved in an accident. Drivers in certain high risk categories, such as teenagers, pay higher premiums regardless of their individual driving record.
A driver’s age is a significant factor in the cost of car insurance. Statistics show that drivers under the age of 25 have more accidents than any other age group, so these drivers have the highest premiums. However, many insurers offer discounts to drivers under 25 who have taken a driver education course or who maintain a good grade-point average. Younger drivers’ rates are also lower if they are married. Insurance rates drop off significantly after drivers turn 26 and contiinue to decline decade by decade up to the age of 60 or 65. For seniors, some insurers offer discounts for good driving records, while others increase premiums because this older age group has a higher than average chance of having an accident.
Gender also affects car insurance premiums. Although discrimination based on gender is illegal in most situations, insurance companies may differentiate between male and female drivers if statistics show that such a difference exists. And statistics show that men have more accidents than women, so their premiums are higher. Men who are under 25 and single face the highest premiums.