How Your Zip Code Affects Your Car Insurance Rates

Just as a prospective insurance company will look at your credit score and driving record, they will also ask some demographic questions such as where you live, what your marital status is, and where you park your car at night. This information tells the insurance company about the crime rate and traffic patterns in your area, when you are more likely to drive, and even indicate how financially stable you have become.

If you live in an area that has a high rate of vehicle theft, your zip code will reveal that information to the insurance company and allow tailoring your coverage for the increased risk. Likewise, if you park your car on the street it will be more likely to be vandalized, burglarized or stolen than if the same car is parked in a driveway or - better yet - safely parked in a private garage. The total amount of risk faced by the insurance company is how your individual premiums are calculated, and explain why two people with otherwise similar demographics will pay differing amounts for insurance. Where you live has an effect on the time of day you are most likely to be driving in heavy traffic, and allows the insurance company to compare your policy against the actual statistics that have been compiled for your area. For example, you would not spend as much time in rush hour traffic if you lived close to your job, and would pose a reduced risk of accident if your daily commute was primarily on multi-lane or controlled access roads. Using your home zip code and the one at your place of employment, quoting software is capable of estimating your daily or weekly mileage to be more accurate in assessing your driving patterns and habits.

You may not think of your zip code as providing such detailed information about your daily life, but when it is combined with other demographic data it begins to give the insurance company an accurate estimate of the insurable risk your vehicle will present. When that data is plugged into the company's database, it can lower or raise your premiums in accordance with actual insurance claim frequency and average costs to give you the best coverage possible at the lowest rates.