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Why location matters for your auto insurance

September 25, 2015

You probably know that your driving record affects your insurance premiums. If you have an accident or get a speeding ticket, you can expect your rates will go up. Your age, the type of car you drive and even your credit history can also cost you more money. But what about where you live?

Turns out, your residency can be one of the biggest factors in determining your auto insurance premiums. A survey from Bankrate found that moving to a new ZIP code could raise or lower your insurance rates as much as 64 percent, even if you kept the same policy with the same company.

Moving to the city? Your auto insurance may go up.

Rates in the urban centers

"More drivers on the roads increases the likelihood of claims.”

Auto insurance rates vary by location due to several factors. The biggest, and perhaps most obvious, is population:  Urban areas will pay higher premiums because having more drivers on the roads increases the likelihood of claims. For insurers, more claims equal higher rates.

For example, an analysis by CarInsurance.com found the highest rates in the country are in Detroit where the average annual premium is $5,109. By contrast, the lowest national rates are in Green Springs, Ohio, population 1,368, where you would pay only $647 annually.

Unsurprisingly, Brooklyn in New York City, Philadelphia, Baltimore and Los Angeles also showed higher annual rates in the survey. But so did Royalton, Kentucky, an unincorporated rural community where yearly premiums are only slightly lower than in Miami. Turns out, population isn't the only way where you live affects your insurance rates.

The factors of place

"If your car is more likely to be stolen or broken-into, your premium will be higher.”

Insurers look at several factors when determining your premium. If you live in a city that experiences frequent snow, ice, heavy rains, hail or flooding, you're more likely to file claims for damage to your car—and more likely to pay higher rates.

Crime is also a factor. If statistics show your car is more likely to be stolen or broken into, your premium will be higher. State laws also matter. Michigan, for example, has mandatory no-fault auto insurance that pays higher benefits to injured drivers. The average claim payout in your area is a big factor when determining your rate. Companies also take into account the condition of local roads and the estimated number of uninsured drivers, which is determined by unemployment rates.

What can you do?

Short of moving to a new home, there isn't a lot drivers can do to combat the geographical factors of their premium. Luckily, there are other elements that influence your rates that are under your control, including having a clean driving record or taking defensive driving courses.