How Much Does Car Insurance Cost? 
Lets say you have a hundred friends and each has an automobile . If they could agree that they wanted to have enough money to pay legal expenses that they might have if they are responsible for an accident , you could form an insurance company . If you were able to determine -LRB- from actuarial studies -RRB- the amount of money you could anticipate spending in helping each other out in the coming year and the amount was $ 50,000 you would then know the basic share for each friend , $ 500 -LRB- $ 50,000 / 100 -RRB- Someone in your group will probably object because they only take their car to shows once or twice a year and certainly dont have the exposure the rest of the friends have . Another will object because they live on a farm and rarely drive into town -LRB- although it might be a long ways . -RRB- They will contend that their exposure is less than the other friends . Another friend will complain because one of the friends has a street-legal racing car and it is more likely that it will be involved in an accident . One of your friends has a drinking problem and no one really wants a share of his legal liability . And so it goes . What at one time seemed simple and logical becomes increasingly complex . Actuaries are a rare group of people who compile data and have the ability to slice that data in many different ways to determine the effects of the location where the car is garaged , average annual miles , credit risk of the owner , make , model and year of the vehicle . In fact , these actuaries can compute over 100 rating areas for an automobile . The point that this exercise makes is to distribute the risk that all of us face equitably . I have been asked if a red car costs more to insure than others . I am sure that a study somewhere has shown that red cars have a slightly higher than average accident rate . It is something that could be used in the rating process . I have been asked if a previously totaled car , now registered legally can be insured based upon that same concern for a fair premium . So actuaries give the insurance company many alternatives upon which they can design a rating scheme for an automobile . In my state the scheme is set by state law . Actually the California Constitution dictates how automobile policies will be rated . So legislative action can have a profound effect on automobile rating . Most states give authority to their insurance commissioner to regulate automobile insurance rates . Their charge is not so much to maintain fairness as it is to make sure that the companies take in enough premiums to pay the claims that are anticipated . In other words , the commissioner does everything in his or her power to make sure that insurance companies keep their promises . Insurance companies keep very close tabs on the claims that they pay and the premiums that they take in . Actually the actuaries get involved in this as well , to determine if they are charging enough for every different type of coverage . When the company fails to receive enough premiums to pay all of the claims in a given year , they approach the commissioner and propose a rate increase . At this point the company has done everything possible to spread the risk appropriately , however , there are some areas that they want to adjust to make sure that the company is being fair and that the company can continue to keep its promises . That is how a company computes what it will charge you for your car . 