Most people don't really understand their auto insurance. Sure, they get that they have to pay every month, and they understand that tickets and accidents will make their bill go up. However, most people don't really understand exactly how their bill is figured. This is unique, since with most purchases, people understand exactly what they're getting. Fortunately, when people understand how their insurance costs are calculated, they can often shop around and find a better deal.

Below are a few of the important categories that influence a driver's auto insurance premium.

• Age

When you're in the prime of your life, your instincts and your reflexes are at their peak. Before that, you're just learning how to drive. After that, and your skills are on the decline. That means you're more likely to be involved in an accident when you're young and when you're old. It also means your car insurance premiums will be higher during these times. Before the age of 25 and after 75 are the most expensive times of your life for insurance.

• Gender

Everyone has heard a joke or two about women and driving. It would stand to reason, then, that women would pay more for their insurance than men. This is flat out wrong. Women often pay up to 12% less for their car insurance than their male counterparts. While this doesn't sound that significant, it means that a man will pay thousands more for car insurance over the course of their lifetime. So, contrary to the running jokes, a male's aggressive driving costs more than any mistakes that females make behind the wheel.

• Credit Score

In every state except California, credit score plays a factor in determining a person's insurance premium. While credit score appears to have little to do with driving habits, the prevailing wisdom is that people with higher credit scores are more likely to behave responsibly in other areas as well. Some people assert that this is a discriminatory practice, and the state of California agrees. However, in every other state, this is a common practice.

• Schooling

Since insurance companies tend to group people into risk categories, they look at a number of factors that can be used to sort people into groups. Overall level of education is one of those factors. Using years of data and statistics, insurance companies have found that it is cheaper over the long run to insure people with higher levels of education. Therefore, people with degrees pay less than those without. Furthermore, the higher the degree, the bigger the premium discount.

• Location

Along with the competition factor, insurance companies price coverage based on the cost it will incur when you submit a claim. This is true for general insurance as well. That means in areas where replacement costs are lower than in others, the average insurance premium will also be lower. In the case of general insurance, that means places where home and medical costs are low. With auto insurance, it means repair and replacement costs for the automobile. As a result, places like North Carolina and Virginia have lower insurance premiums than expensive states like New York.

• Pricing to Break Even

Insurance providers are in constant competition for business. As a result, they have to adjust their price so that they attract as many customers as possible. This means pricing insurance as low as possible. Therefore, depending on the amount of competition in a region, it is actually common to see insurance companies selling coverage at a break-even rate. In these situations, they make their profits from interest gained on your premiums while they wait to pay out a claim.

While insurance companies won't often come out and discuss this with customers openly, they won't deny it. That means when you shop for insurance make sure you ask about these factors on your policy.