You just bought a spanking new car, and now you’re searching for low cost auto insurance. Once you give an insurance company with some information, including the make and model of your car, your age, your address, etc., they give you a quote for your monthly premium. But how exactly do they calculate that number?

Below we review how insurance companies determine your premiums and how you can save money by shopping around.

Different insurers, different quotes

Many drivers mistakenly believe that insurance rates are set by the state. While auto insurance companies must follow certain laws when calculating rates, the rates themselves are not set by law.

After requesting a quote, the car insurance company considers various factors as they underwrite your rate. However, because each company uses their own actuarial method, you’ll see widely varying rates from different insurers.

Number crunching

Depending on the laws in your state, insurance companies typically determine your rate based on some or all of the following factors:

* The year, model, body type, engine size and safety features of your vehicle * Your age, gender and marital status * Your personal credit history * Your driving record * Expected usage of the car (such as if you are using the car for commuting to and from work, pleasure or as a collectible.) * Home ownership status and occupation * Number of drivers that will be using the car and their ages * Number of vehicles you own * Requested coverage limits * Where you reside * Assumed weekly, monthly or annual mileage

Generally, your insurance agent will enter all of this information into a computerized system. The system automatically places you into a price group based on your personal information. The insurance company then subtracts any discounts for which you qualify from your group’s rate and you’re left with the resulting quote.

Where your money goes

Once you find a fair quote and decide to purchase a policy with the auto insurer, you’ll start paying a monthly insurance premium. But what exactly does your monthly premium cover? Let’s examine a typical breakdown:

* About 70 percent of your premium pays for losses and loss expenses * About 26 percent of your premium goes toward marketing, commissions and administrative costs * About 4 percent of your premium contributes to the insurance company’s profits

You better shop around

Each insurance company has differing sets of claim payments and expenses, and they set rates for each “price group” accordingly. That’s why you’ll likely receive varying quotes from each insurance company. This is why it’s so important to take the time to shop around and find the best rate.

Plus, while insurers are prohibited by law to calculate rates based on race or religion, they can consider your age, gender and marital status. However, each company places emphasis on different factors. For example, while one company may place more emphasis on a driver’s gender, another company may view their driving record are more important.

This is yet another reason to request plenty of quotes before you settle on an insurance company. In addition to the rate, you should also consider which company offers the type of coverage you desire. Do your homework and find the best fit for your unique auto insurance needs.

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