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Determinants of Car Insurance Premium

No one likes to be charged high car insurance premium. Not only will people prefer low car insurance premium, some people can go as far as driving without insurance when they know that it is illegal to do so. Before you start shopping around for your car insurance, you should understand some criteria that insurance companies use in determining what a car owner should pay as premium. It will interest you to know that insurance companies assess people on an individual basis. That is, each person is assessed based on his peculiar situations before arriving at the amount that he will pay as premium. The fact that somebody told you that he was able to get cheap car insurance rate from a particular insurance company does not necessarily mean that you will be asked to pay the same car insurance premium. Below are some of the factors that affect the car insurance premium you may be asked to pay.

• Age: Your age is one of the factors that affect the car insurance rate you will be charged. Your date of birth or age is part of the information you must provide to insurance companies you approach for your car insurance. Generally, teens are usually charged higher rates than people who are already matured in mind. The reasons for this are obvious. Teens in most cases don’t have driving experience and they tend to drive recklessly. They engaging in night driving and are easily distracted when driving. They don’t mind playing with their mobile phone while driving. All these acts pose risks to insurance companies. Therefore, they will like to compensate for these risks by way of charging teens or young drivers higher rates.

Read Also: Why Car Insurance for Teens Are Usually Expensive

• Gender: Gender is another factor affecting the rate that insurance companies charge as car insurance premium. Men are more aggressive and this usually reflect in the way they drive especially when they are still in their youthful age. Men tend to engage in long distance driving. The longer you stay on the road, the higher the probability that you may get involved in an accident. However, the difference between the car insurance premium that a man and woman will pay may not be significant when they have passed that youthful age when they are full of exuberance. As men grow older, they tend to drive more carefully, thereby bridging the disparity between what they pay as car insurance premium in comparison to their female counterparts.
• Driving Experience: If you are inexperienced and have only driven for few weeks or months, there is tendency that you may hit another car or object while driving. If you want to pay cheap car insurance premium, it may be better to let your parents add you to their car insurance as an additional driver. However, this may increase their own insurance rate. Some parents will be willing to do this for their sons and daughters who are in that position.
• Claim History: If you have been driving for some time and you don’t have history of filing claims, you may qualify for no-claim discount. It is not enough to have no claim history. Some people will get involved in accident and try to hide it from their insurer. This is not helpful in anyway because the insurance company may later find out. This can make them to increase your car insurance premium or cancel your policy completely. You owe your insurer a duty to make adequate disclosures to your insurer. Insurance companies use the past to predict the future. They believe that anybody who has claim history may possibly file claim in the near future.
• Credit Score: Some people mistakenly believe that credit score is only used to assess the creditworthiness of any person that wants to apply for loans or credit cards. This is not true. Insurance companies also rely on your credit score to determine whether you will be able to pay your car insurance premium especially if you opt to pay quarterly or semi-annually. Your credit score reveals your credit behavior. It takes care of your credit history and your types of credit. History of late payments or delinquencies may increase the car insurance rate you will be charged. However, if you fail to pay your premium, this may not pose a problem to insurance companies. They will simply cancel your policy. Insurance principle is; “no premium, no policy”.
• Use of Car: How do you use your car? Do you drive your car to work every day or you only drive your car on weekends? If you drive your car to work daily, insurance companies will like to know the distance you will need to cover before you get to your work place and how busy your route is. The longer the distance, the more the chance that you may be involved in an accident. Also, if the route you take is always busy with many vehicles on the roads, you may likely be hit by another vehicle while the person runs away.
• Location: Your geographical location is one of the main factors that determine your car insurance premium. Insurance companies rate territories based on their risks. If you live in a city that is prone to crime, you will most likely pay high car insurance premium. Also, each State has its own minimum car insurance coverage which all drivers must comply with. For example, people living in Alaska may likely pay higher premium than people living in Alabama because the minimum car insurance coverage in Alaska is higher than that of Alabama. You may not be able to do anything about this except you decide to relocate to a city where car insurance is relatively cheap. Also, another factor relating to your geographical location is where you park your car. A car that is parked in the garage is considered safer than a car that is usually parked by the roadside.

Read Also: Car Insurance: Understanding Collision Coverage

• Type of Car: The type, make and model of your car is another major factor that affects your car insurance premium. People think that it is when you drive expensive car that you are going to pay high car insurance premium. This is not always the case. You may drive a cheap car and still pay high premium. Insurance companies look at the possibility of theft. There are some cars they are prone to theft even though they may be cheap. Such cars will attract higher car insurance rates than expensive cars like Limousine that are not easily stolen. Also, sports or racing cars have greater chance of being involved in crash than a car you use for pleasurable trips. Also, cars with safety gadgets such as air bags, burglar alarms and other devices which may enhance the safety of the car and passengers will definitely help you lower your car insurance rate.
• Car Age: If your car is relatively new, the value will still be very high. This means that the cost of replacement will be very high also in case you get involved in an accident. This makes new cars to attract high insurance rates. If an old car gets involved in an accident and is totaled, the owner may even choose not to repair the car again. When a car is too old, the cost of repairing may be too high. This may make the owner consider buying a new one instead of spending too much money on repairs. For this reason, insurance rates on old vehicles may be cheaper.
• Marital Status: What has your marital status got to do with your car insurance premium? Insurance companies believe that married people drive more responsibly. Of course, they don’t just base their premium on mere assumptions. They work on statistics.
• Profession: Your profession has a way of influencing the way you drive. If your work requires that you are always on the roads or there is tendency for you to drive in top speed in order to meet deadlines, you may likely pay high car insurance premium.
• Type of coverage: There are different types of car insurance coverages such as car liability insurance, collision insurance and comprehensive insurance etc. The type of coverage that you choose will determine the premium you will pay. For example, somebody that opts for comprehensive car insurance which is more encompassing will have to pay higher premium than somebody who only pays for the required minimum car insurance coverage. Though you will be able to save money on the minimum car insurance coverage, the danger there is that it may not provide you adequate coverage.

Read Also: Car Insurance: What Liability Insurance Covers

• Where you buy car insurance: Insurance companies may seem to offer the same products, their levels of service delivery may be different. A well-established company with good and sound customer service may charge higher premium than what a new up-coming insurance company is still trying to find it feet on the ground will charge. A new insurance company may like to charge low car insurance premium in order to attract customers. But the problem is that, how are you sure that the company will be able to honour your claims when the need arises. Also, insurance companies offer different types of discounts. You can take advantage of this in order to lower your car insurance premium.
• Deductibles: A creative way of lowering car insurance premium is when you increase your deductible. Deductible is the amount you have to pay towards the repairs of your car in case of any accident before the insurance company pays its own portion. Let’s see how deductible works. Let’s assume that your deductible is $500. You are involved in an accident that requires $1,300 to repair. Insurance company will not pay you the entire $1,300. It will only pay you $800(that is, $1,300 – $500). Meanwhile, you will need to first pay your $500 before the insurance company pays the balance of $800. This means that if you are unable to pay the $500, the insurance company will not pay its own $800 either. That is why it is always advisable to set your deductible to the level that you can easily pay out of your pocket.
• Training: Have you gone for any safety driving training before? If you have, you can be entitled to special discount. You may need to ask your insurance company whether they offer this type of discount.

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