What Drives the Cost of Your Car Insurance?

Car insurance is priced based on you and your driving record, your car and where you live and drive, plus on any state-specific rules that might affect insurance rates. Because insurance is regulated by individual states, rates can vary sharply among states. So, if you paid $1,000 for car insurance in Iowa, for example, and then moved to Silicon Valley, you could pay two or three times more for the same coverage. California insurers don't necessarily take those extra premium dollars to the bank. There is a lot more traffic, accidents, auto thefts and related risks of loss in California, and these real expenses help explain the higher premiums paid by California drivers.

Minimum Insurance Requirements

Different states have different minimum insurance requirements. Please keep in mind that these are minimum requirements. Getting a policy with these levels of protection will satisfy the law in your state but probably will not provide you with solid protection should you be in an accident. Remember what insurance is for - to protect you and your property. Property can mean everything you own besides your car, so don't put your assets at risk by buying a policy with bare-bones liability coverage.

Liability Insurance and Saving Money with Umbrella Policies

Because liability is so potentially large in an auto accident, determining who's at fault in an accident can mean big money. Even in what are called "choice" or "no fault" states, being found liable for an accident can be a life-changer. You may lose your coverage and your license, face much more expensive insurance costs for several years and also be on the wrong end of liability lawsuits should the accident involve any serious injuries. Many states have some form of no-fault car insurance. Look for details on your state's insurance website.

One common and cost-effective way to boost your liability protection is to get what's called an "umbrella" liability policy that tacks on substantial liability protection for your vehicle(s) and your home. This can often save you money on both your homeowners/renters insurance and your car insurance, since the insurance company will offer discounts to get more of your business (similar to a cable company that wants to bundle your TV, phone and Internet service).

Your Car Matters

Finally, keep in mind that car insurance can vary by the type of car you drive. The Insurance Institute for Highway Safety conducts safety tests and provides vehicle ratings used by the insurance industry in calculating your insurance rates. A car with solid IIHS safety ratings will typically cost less to insure.

If You Have a Bad Driving Record

Drivers with accidents and traffic tickets on their records may have trouble qualifying for an auto policy. Because coverage is legally required, the insurers doing business in a state have set up what's normally called an assigned risk pool, where they agree to provide coverage to drivers with poor records.

If you're rejected for normal car insurance coverage, the insurer that rejects you is supposed to tell you about the assigned risk option. Your state insurance department website should have this information as well. When you apply to the assigned risk pool, your coverage will be randomly assigned to one of the auto insurers in your state that participates in the pool.

So, you may not have much choice about who insures your car, and you'll pay more for coverage - often a lot more. Assigned risk designations often last until your record has improved - that can take three years in many cases but check with your state to find out.

There also are insurers who specialize in covering what are known as "substandard" drivers. They are willing to accept riskier drivers in exchange for collecting higher premiums from these drivers. If you qualify for one of these policies, you should find out how the proposed rates compare with those charged in your state's assigned risk program. Sometimes, not often, you can find better rates in the assigned risk program.

Get the Best Deal for You

Now that you know what determines your insurance costs, it's important to make sure you get the best deal on car insurance. Get multiple insurers competing for your business by getting multiple quotes online. Cross-shopping is the best way to get a good deal.