What Factors Affect Insurance Rates?

Every insurance company determines its own personal insurance rates. Although each formula is different, the following factors commonly affect insurance rates:

For property insurance

  • Building construction (frame or masonry)
  • Public fire protection
  • Age and type of roof
  • Use of devices like generators or smoke and theft alarms

For auto insurance

  • The driver’s age and driving record
  • The vehicle’s make and model, age, use, and protective devices
  • Location of residence — where the car is usually parked

To determine a premium, underwriters apply these factors to the base rate of the coverages you request.

The base rate is the cost per unit of a coverage type, without accounting for personalized factors.

Why do insurance companies personalize rates?

Insurance operates on the principle of shared risk: all policyholders share the risk of each driver and homeowner.

An insurance company must be able to cover anticipated reported claims in a year while offering a competitive rate that reflects each policyholder’s individual risk.

The information and descriptions on this site are general in nature. The coverage afforded for a particular loss depends on the specific facts and the terms, exclusions, and limits of the actual policy. Nothing on this site alters the terms or conditions of any policy, as the policy controls coverage. Coverage options, limits, discounts, deductibles, and other features are subject to underwriting criteria, state availability, and effective dates. Coverage provided and underwritten by NJM Insurance Company and its subsidiaries, 301 Sullivan Way, W. Trenton, NJ 08628.