Experience

• Younger drivers are less experienced, and they might lack the knowledge needed to safely operate a vehicle in trying conditions. They might be less prepared to drive in inclement weather conditions, or they could be more easily distracted while under the wheel. Insurance companies compensate for the experience disparity between younger drives and more experienced drivers by charging higher premiums to drivers younger than 25.
  
  

Insurer Profitability

• An insurance claim can cost the insurer more than one claimant would typically pay in premiums over the life of his policy. To mitigate their losses, insurance companies pool the cost of paying claims across a broad number of drivers. This means that younger drivers pay higher premiums, because their peers have more accidents and cost insurance companies more money.
  
  

Why Collision Coverage Costs More

• Collision coverage provides payment to policyholders when an accident occurs, even if the accident was the policyholder's fault. Young drivers with collision coverage pose a greater financial risk to their insurers, because after an accident the company would have to pay for fixing the youthful driver's vehicle as well as the other party's vehicle. Insurers compensate for these risks by charging more to young drivers who purchase collision insurance.
  
  

Lack of Creditworthiness

• Insurance companies charge lower rates to drivers who have demonstrated good payment history with other insurers. Likewise, insurance companies prefer drivers with good credit histories. Younger drivers are usually unable to prove their creditworthiness, and they often are charged the same rates that would be charged to an applicant with a rough financial history. (This is true with creditors in a wide variety of industries with rates that depend upon the customer's financial behaviors.)
  
  

Other Insurance Rating Factors

• Insurance rates are determined by a variety of other factors that include the driver's marital status, credit history, personal driving history, vehicle type, and past claims. Insurers use all of these things to determine the likelihood that a customer will file a claim, and the projected cost of the claims that might be filed.
  
  Insurance companies know that it would be more expensive to reimburse a policyholder for a total loss involving an expensive sports car than it would be to pay for a total loss involving a compact American-made vehicle. This is why young drivers who purchase foreign sports cars pay higher premiums than those who purchase compact domestic vehicles. Likewise, drivers with speeding tickets are more likely to have accidents, which is why insurance companies charge more to young drivers who have received speeding tickets.