How are average insurance rates calculated?
Average insurance rates are calculated by selecting a profile and coverage levels as well as other parameters such as location. The broader the selection of these variables, the fewer people they’ll apply to. The average is more helpful when the source explains how it was calculated. Your quote will be different because your situation and coverage needs may not be the same.
For example, a California car insurance average could include rates for millions of drivers and vehicles across the state. That would provide a broad statewide picture, but it would not tell you much about the rate for a specific driver or car.
A rate study that uses a standard profile, such as a 40-year-old driver with a clean record and a particular vehicle, provides average rates for that specific profile. Insurance.com’s standard full coverage auto rates are based on a 40-year-old driver, a Honda Accord LX, good credit, a clean driving record, a 12-mile commute, and 10,000 annual miles. The study also uses defined liability limits of 100/300/100 and $500 comprehensive and collision deductibles.
From that baseline, further averages can be created. What if that driver had a speeding ticket? What about an accident? How much would that driver pay for state minimum liability coverage or for full coverage?
We can look at the rates across multiple ZIP codes and compare them from many insurance companies. We can also compare rates for other age groups to that baseline average.
The same applies to average home insurance rates. No two houses or homeowners are exactly the same, so there are a lot of variables. Those can include the size and age of the house, risks like a pool and finishes in the house, like floors and countertops. Averages are usually based on dwelling coverage amounts, which may be higher or lower than your actual coverage needs.
From a large quantity of data, average rates can be narrowed down and calculated in various ways. Not everyone will approach it in the same way, and there’s no wrong way – as long as the parameters that are used are clearly explained.
What factors affect average insurance rates?
Average insurance rates change when the profile changes. For auto insurance, the biggest differences come from the driver, vehicle, location and coverage. For home insurance, the home's replacement costThe cost of replacing or repairing lost or damaged property with like kind and quality at today’s price without depreciation., location, construction and risk factors change the rate. Insurers also consider other rating factors, such as claims history and credit, where allowed.
Some of the factors that can be used to calculate average car insurance rates are:
- Age and gender
- Location
- Vehicle year, make and model
- Driving record
- Credit history
- Claims history
- Coverage level
Some of the factors that can be used to calculate home insurance rates are:
- Age of the home
- Square footage
- Location
- Construction materials
- Claims history for both the home and the homeowner
- Risks on and around the property
- Credit history
- Coverage level
All of these factors can be applied in a multitude of different ways.
Why do I see different average rates on different sites?
Different average rates often come from different ways of calculating rates. One site might use minimum liability coverage, while another uses full coverage. One might use a younger driver, a different vehicle or a different home coverage limit. Location, insurer selection, and the timing of data collection also affect the result.
If one site provides an average rate that’s a lot lower than what you’ve seen elsewhere, it’s important to look at the parameters that were used.
Are you looking at rates for state minimum liability coverage vs. full coverage? Is the rate for a younger or older driver? Even things like which ZIP codes were used and which insurance companies provided rates will impact the final average. Again, the same applies to home insurance rates.
Before comparing averages, check:
| What to compare | Why it matters |
|---|---|
| Driver or home profile | A younger driver or an older home can increase your rates. |
| Coverage limits | Higher coverage limits generally cost more. |
| Deductible | A higher deductible can lower the premium. |
| Location | Rates vary by state, city and ZIP code. |
| Insurers | Different companies included in the study produce different average results. |
| Data date | Rates change over time, so older averages can become less useful. |
| Methodology | A clear methodology helps you understand what the average actually measures. |
There’s no official profile that’s used when calculating insurance rates, so the variations in that profile will mean a lot of variation in the rates. A good source will outline the methodology that was used to create average rates in as much detail as possible so that the reader knows what they’re looking at. Look for that information at the bottom of the page (that’s where you will find it on Insurance.com pages) or in a pop-up or drop-down box.
How are average insurance rates useful?
Average rates help you compare insurance costs before you buy a policy. They can show which companies tend to be cheaper for a particular profile, how rates vary by location and how coverage changes affect premiums. They are most useful as a starting point, not as a prediction of your final quote.
It’s fair to wonder how seeing the average rates for a 40-year-old male driver with a clean record apply to you if you’re a 25-year-old female who had an accident last year. While the rates themselves likely aren’t, the trends they uncover can help anyone.
Furthermore, having those rates creates a baseline for comparison. If rates for a 40-year-old show one company to be the cheapest, and you see a completely different cheapest company for your age and profile, it’s a good clue as to how those companies are weighing factors like age.
At the end of the day, average rates are simply a starting point. They’re created to provide an overview and allow the reader to compare their own quotes with overall averages.
If you’re looking to buy a new car and want a general idea of which of the cars on your list is the cheapest to insure, average rates are a quick look into those numbers. If you’re considering a move and want to know what insurance rates are like in your new ZIP code, averages can tell you.
Average insurance rates: The bottom line
Averages should always be taken as a helpful basis from which to start your search for insurance rates. Your rates will always differ, but knowing the average can tell you whether the insurance quotes you’re getting are really high or even really low.
Because there are a lot of insurance companies out there, averages can also help you figure out where to start your search. From there, it’s vital to compare as many as possible based on your own specific profile variables and coverage needs. The more detailed those variables are, the more accurate the quotes you get will be.
FAQ: Average insurance rates
Why is my insurance quote higher than the average?
Your quote may be higher than the average because your profile or coverage differs from the sample used to calculate it. Your location, vehicle or home, coverage limits, deductibleThe deductible is the amount you pay out of pocket for a covered loss when you file a claim., driving record, claims history, and other rating factors affect your premium.
Are average insurance rates accurate?
Average insurance rates are accurate for the profile and coverage levels used to calculate them. They are not guaranteed to match your premium because insurers use different rating factors, and your circumstances will differ from the sample. A clear methodology helps you understand what the average represents.
Can average rates help me find cheap car insurance?
Yes, average rates can help you identify companies that are worth comparing for your driver profile. They show which insurers tend to offer lower rates for a specific set of drivers, vehicles and coverage. You still need personalized quotes to find the cheapest option for your situation.
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