11 Risk Factors Determining Your Car Insurance Premium
Car Insurance Risk Factors
Your risk factors are essentially what determines the kind of car insurance quotes you will get when shopping around for insurance companies that can help you insure your car. You should understand that insurance companies don’t just give quotes arbitrarily. It is not that they will just look at your face and then slam you with high premium. Even when you shop around, you will notice that the gap between the quotes you will get from different insurance companies may not be that significant. This will give you a clue that there are certain risk factors they usually consider before arriving at the car insurance rate that will apply to you. So, what is a risk factor? Risk factors are certain attributes, characteristics, circumstances and exposure of an individual that increase the likelihood that an insured person will file claim(s). Some of these risk factors are general while some apply to individuals based on their peculiar situations or circumstances.
You will agree with me that insurance is purely about risks; both to the insured and the insurance companies. If you are buying any insurance policy, you are simply transferring the risks of the likely negative events that may occur in the future to the insurance company. You are not just transferring the risks, you will also be risking your money on something that may not happen. This means that you are spending your money which you would have invested or used for other important purposes on something which may never happen. Of course, it is actually worth it. In the same way, insurance companies are taking over the risks by charging you premium. The expected negative events may not actually happen. If no negative events happen, your premium becomes profit to the insurance company. But in case of the occurrence of the negative events, insurance companies can pay the amount that is as high as twenty times what you paid as premium. The only leverage is that insurance company usually pool money from large customer base. When these customers pay their premium, the premium become significant when pooled together. And it is not possible that all the customers will file a claim . It can be that only one out of one hundred customers will file a claim in a year. In order for the insurance companies to minimize their risks and to ensure that they charge adequate premium that truly represents the kind of risks they intend to carry, they rely on certain risk factors in assessing individual customers.
So, if you plan to approach any insurance company in a bid to get car insurance quotes, below are some of the risk factors that will determine the quotes you will return with.
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- Credit rating: If you have a very good credit rating, this can be beneficial to you as it can help you get cheap car insurance rates. People with excellent credit score are considered to be creditworthy and somehow responsible in their financial dealings. Insurance companies believe that people with good credit rating will hardly file claims. Even if they file, they will not file over bloated claims. There is likelihood for them to be sincere and transparent. But if your credit rating is bad, your car insurance premium may be high. Besides, you may not be given the privilege of paying your premium in instalments. There is tendency that people with bad credit history may default in paying their premium. That is why they may be asked to always pay their premium upfront.
- Age: Apart from the fact that teens and young drivers are inexperienced, they tend to get involved in reckless driving which can put their lives, passengers and the car in jeopardy. Even if they are not reckless in their driving, they don’t have driving history that the insurance companies can use to assess their risk rating. For this reason, the risk factors of teens and young adults are rated the same. However, if you are a student with good grade, you may qualify for good grade discount.
- Gender: When it comes to car insurance, men especially young ones are usually rated higher than their female counterpart in term of risk. Nevertheless, as men advance in age, the gap between what men pay as car insurance premium compared to what women pay begin to close up.
- Year of driving experience: Don’t think that if you are no more a teen that you will no longer be asked to pay high car insurance premium. Even if you are forty years old and you don’t have driving experience, your risk factors will still be rated high.
- Geographical location: One of the vital questions every car insurance company will ask when you are seeking for car insurance quotes is your geographical location. You will need to supply them your Zip Code. Your car insurance premium will be influenced by the risk rating of your location. There are certain areas that are prone to theft, crime and vandalism. You will also be asked about where you normally park your car. If you park your car in an open space in a location crime that is prone to theft and other crime, your car insurance premium will be high.
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- Driving Record: How do you drive? Do you drive at the top of your car speed? If your record show that you have been involved in an accidents in which you are at fault or you violate traffic rules, you are increasing your risk factors. Those people with good driving record can enjoy safe driving discounts and this can help them save money on their car insurance premium
- Claim history: If you have filed claims two or three times within the last three years, your car insurer may likely increase your premium. Changing to another insurance company may not help either. Every insurance company will like to probe into your claim history and the reason why you are changing your car insurer.
- Mileage: The risk factors for people that drive to work daily on a long distance with busy traffic having too many vehicles on the road are high. You can’t compare them with somebody that usually parks his car at home to commune to work every day.
- Vehicle safety rating: The type, make, model and the types of safety devices installed in your car will influence the car insurance quotes that you will get. Vehicles with air bags, anti – lock brakes, theft alarms and tracking device will attract lower car insurance premium. It is not just the cost of the car that you ride that will determine whether the rate you will be asked to pay will be high. There are certain cars that have high rate of theft incidence. Another examples are the racing cars that are prone to accident.
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- Coverage and Deductibles: The more coverage you have on your car, the higher the premium you will be asked to pay. But if you only buy the State required minimum car insurance coverage, your premium may be low. Also, if you choose to increase your deductible, you will be reducing the risks that your car insurer will need to take. Therefore, this will reduce your car insurance premium too. However, deductibles have to be set with caution. While high deductible will help you reduce your car insurance premium, it can create a problem for you if you have to file a claim. If it is too high, you may find it difficult to pay as an out of pocket expenses. Your car insurer will not pay your claim until you have paid your deductible.
- Use of Car: Cars used as personal purposes may be less risky than vehicles are used for business or delivery purposes.