How Do Zip Codes Affect Auto Insurance Costs?

Zip code is often the first thing asked in a car insurance quote form because it affects your rates in two significant ways. Your Zip code shows which state you live in and where in that state you are located. Even in the same state, certain areas are as much as twice more expensive than the average in that state. Also, premiums can change as much as six times depending on your state because each state has their own regulations, laws, minimum requirements and demographic factors.

Every automobile insurance company rates every zip code in their own ways by looking at congestion, density, statistical auto theft, vandalism, traffic injuries and litigation figures and their own claim experience in a given zip code. If vehicle insurance companies’ claim losses are larger in one location, they will have to collect enough premiums from the drivers living there.

In other words, they set base rates for every zip code and your zip code determines what your base rates are. If you start with an expensive base rate because you live in a zip code with expensive vehicle insurance, your premiums will end up relatively expensive too, even if you have excellent driving records, a modest car, good credit score and long insurance and driving history.

Why are policyholders’ home addresses important?

city vs countryside

Naturally, people drive mostly around their neighborhood. At least they go to work from home and come back almost every day. In addition, they park cars nearby overnight. Statistically, large numbers of accidents occur around policyholders’ homes. So, companies have to look at what is happening in the immediate area.

How does the state you live in influence premiums?

The regulations and laws are of concern as well. Sometimes, these laws can be prohibitive enough that some underwriters may decide not to do business there. It may appear that minimum automobile insurance requirements may be the reason for the price differences. However, there are many other reasons behind higher premiums like accidents, auto crimes, weather related damages, medical bills for injuries and compensations awarded in courts for injured people. It is statistically well documented that it is much more expensive to insure automobiles in certain states in America.

For example, the average premium for minimum state required coverage is only $223 in Iowa but it is $1,371 in New York, which is over six times higher. When you look at the demographics you can see how different these two states are from each other. Iowa is lightly populated and considered to be one of the safest states to live in the country. New York is completely opposite and that may be the key reason as to why drivers pay higher premiums in New York.

How much a zip code affects auto insurance quotes?

This totally depends on where you live. Moving from a sleepy hamlet to a big city like New York can easily triple rates. So much so that some people commit fraud by giving different addresses than their actual one in the center of a town. Furthermore, some zip codes may be considered a danger zone by most insurers due to high concentration of crime. This has been a hot topic recently and some neighborhoods started campaigns to challenge the way risks were evaluated based on location.

The impact will be much more obvious when we look at how other factors affect prices. For example, you may get about a thirty percent discount for having a great driving record. This hard earned discount would be dwarfed by how much the costs can go up based on your city zip code. However, good driver discounts would be a lot more valuable in such locations.

Location factors affecting car insurance rates

Number of claims in your area is one of the clear reasons why companies charge higher rates. Some states are known for not only the number of injury claims but also high settlements awarded for injured people. While many states may allow auto insurance companies to set a maximum limit for injuries, these limits may be much higher in other states. Anything that leads to higher claim losses will cause premium increases in that area not only for the policyholders with claims but everyone else too due to increased expectancy of potential claims.

Population density has a way of increasing chances of accidents. Premiums are higher in cities because of the significantly higher fender benders in comparison to rural areas where there aren’t as many cars.

Harsh weather conditions like snow, hail and sand storms, hurricanes and tornadoes increase the claims in such areas. The basic idea behind insurance is that it is a pool of money collected to pay for people who suffer losses. The more losses require collection of more premiums from all the participants in the insurance pool.

Higher crime rates increase premiums because automobile insurers cannot ignore that statistically your car is more likely to be stolen in the new zip code you moved in.

Socio-economic conditions are monitored and rated as well. Historically, poorer areas have a higher ratio of uninsured motorists and every policyholder needs to chip in to make up for the damages and injuries those uninsured drivers cause.

Badly maintained roads cause more accidents due to driving conditions or even bad signage or road design and that affects the premiums one way or another.

Each vehicle insurance company has already rated your zip code and they know how much more or less they need to charge applicants. The moment you enter your zip code these rates apply to you before any other factors are taken into account. Remember that every company has its own rating formula and another company would rate your zip code and other details differently resulting in lower or higher premiums. That is why you need to get multiple auto insurance quotes and compare prices.