Personal Finance

The cheapest age for car insurance

Insurance companies love you for your wrinkles.

But it's not only about your age. It's about the house you've bought, the spouse you have, and the bills you've paid.

That's why you're in the sweet spot for the best auto insurance rates from most companies if you're between the ages of 40 and 60, says Penny Gusner, consumer analyst for

"These drivers have usually settled down, have a family and drive responsibly, and are responsible with their finances," Gusner says. (See " How your insurance rates change .")

A two-year analysis of nearly 200,000 quotes delivered through's online comparison engine showed that 16-year-olds saw an average rate of $4,075. By age 21, that average fell by half. And by age 50, it fell by half again.

Older drivers are more likely to be contending with slower reaction times behind the wheel and worsening eyesight. Those risks overcome greatly reduced mileage to result in rates that begin rising again after age 65.

Average car insurance quotes by age

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The penalties of youth

Whether someone has settled down in life or can balance a checkbook may seem irrelevant when it comes to purchasing auto insurance. In fact, they're just two of a multitude of factors that come into play when insurance companies set their rates.

Some factors are obvious. If your driving history is marred by a string of accidents and driving infractions, you can expect your rates to soar.

And age is a key consideration. "Younger drivers tend to take more risks," says Chris Hackett, director of personal lines policy for the Property Casualty Insurers Association of America. That can lead to younger drivers being involved in more accidents and receiving more traffic tickets.

But even with clean records, drivers who have been licensed less than three years tend to pay an "inexperienced operator surcharge," he says.

Though much depends on the insurance company, the penalty for inexperience usually disappears altogether by the time a driver has reached 25. But the drop doesn't come all at once.

For example, a major insurance company in California multiplies its base rate for liability coverage by 1.9 for newly licensed drivers -- effectively doubling the premium. That factor drops to 1.2 with five years' experience. At 10 years, the factor is .85 -- now, in effect, a discount off the basic rate.

Revenge of the minivan

"A younger driver is more apt to be distracted when they're driving. A 40-year-old is likely to be more cautious," says Lynne McChristian, a spokeswoman for the Insurance Information Institute.

That's borne out by auto accident statistics.

National Safety Council data show there were 211 million licensed drivers in the United States in 2009. Those who were age 19 and younger accounted for less than 5 percent of the licensed drivers but were involved in 8 percent of fatal crashes and 12 percent of all accidents. Drivers between the ages of 20 and 24 made up more than 8 percent of the licensed drivers, but were involved in 13 percent of fatal accidents and 15 percent of all accidents.

But there's much more to it than that.

Along with considering your age and experience when setting car insurance rates, your insurer looks at a host of other factors. If you have no black marks on your driving or claims histories, the biggest factor influencing your rates is usually your ZIP code.

More auto accidents are likely to occur in urban areas than rural ones, and even in the same city, auto thefts and auto break-ins may be more common in certain ZIP codes. All other things equal, the same driver in the same car may see rates differ by hundreds of dollars from one side of town to the other, and by thousands from state to state.

Unfortunately, younger drivers tend to prefer downtown to the suburbs. (See's "Nosy Neighbor" tool to compare rates by ZIP code in your town.)

Auto insurers in many states also look at your credit score. Those who exercise common sense with money are expected to exercise common sense behind the wheel, Hackett says.

Young drivers tend to have no credit or bad credit. (See "The double whammy of bad credit.")

The type of vehicle you drive also plays a major role, Hackett says. If you own a BMW rather than a Camry, you are likely to face far higher rates.

And insurance rates for the same individual can vary greatly by company because each insurer uses its own statistical information on the various age groups it insures, Hackett says. The difference can be hundreds, even thousands of dollars. (See "Pocket $1,102 just by shopping around.")

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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