Have you ever wondered how auto insurance companies come up with insurance rates and why these rates vary from one insurance from to another?
Well, auto insurance1 can seem like a complete mystery, especially when you factor in automobile insurance premiums. Various insurance companies give you wildly different auto insurance quotes. Although they might consider the same characteristics when setting costs, insurance firms use their data, car insurance estimator and formulas to assess the level of risk you pose. What’s more, your auto insurance premiums might be affected by factors you have no control over and might not even be aware of.
However, like any other product, there are some factors that you can control – like paying your bills on time, driving carefully and shopping around for cheap car insurance rates.
With that, here’s a detailed guide on the factors that can affect your car insurance premiums2.
What Are the Rating Factors?
Need to insure your car but can’t seem to figure out the factors considered when figuring out your premiums? Here are some of the rating factors that insurance companies use to determine your premiums:
#01. Where You Live
Insurance firms determine the car insurance rates based on where you reside. Therefore, if you live in an estate with high rates of theft or insurance claims, you can expect to pay more to offset these expenses.
Moreover, highly populated towns feature higher insurance rates as you’re more likely to be involved in an accident due to increased congestion.
#02. The Type of Coverage
The form of insurance coverage also matters. Most countries offer some auto insurance requirements that typically involve liability insurance3 coverage. Auto insurance coverages that are also usually involved in an auto insurance policy are comprehensive coverage, collision, underinsured and uninsured, among others.
There are also optional coverages you might want to consider like towing and labour costs and rental reimbursement.
#03. Your Insurance History and Previous Claims
Most insurance firms also check your previous claims and history. So, if you had a car insurance policy before and the frequency of insurance claims4 you made, will have an impact on your insurance premiums.
#04. The Make & Model of Your Car
Insurance firms also consider car insurance rates by car. Typically, the more luxurious your vehicle, the higher the insurance premiums. Expensive car models are often more costly to repair in case of an accident and also to replace if stolen.
#05. Your Driving Experience
Auto insurance companies also consider car insurance rates by age. According to studies, younger drivers are higher risk – they’re more likely to have an accident due to lack of enough experience on the road, Thus, their insurance premiums will be higher compared to older drivers.
#06. Vehicle Modifications
When taking out any type of insurance policy, you have to disclose to the insurer if you’ve made any alterations to your vehicle that aren’t classified as industry-standard. It could be alterations such as modifications to your engine, alloy wheels, sunroof, among others. Vehicle modifications, as expected, will fetch you higher premiums, too.
#07. Safety Features
Today many auto insurance companies are recommending car owners to install safety features like the telematics device and even an anti-theft system. These devices will fetch you a discount since you’ll be assumed to be low risk.
#08. Business or Private Use?
If you mostly use your vehicle for business purposes than personal errands, then you’ll pay higher premiums since you’re deemed high risk.
#09. Where You Park Your Vehicle
It might sound weird, but your parking area also determines your insurance rates. It’s considered more secure, and a lower risk to the insurance company if you park your car behind locked gates or in a secure garage.
#10. Your Age, Gender & Marital Status
These also determine your premium rates. If you’re younger, for instance, you’re considered high risk; thus, you pay higher premiums.
Married people pay lower premiums, unlike their single counterparts since they’re considered safe drivers (lower risk).
Men also tend to pay higher premiums than women since ladies are considered to be lower risk – they’re careful drivers.
Find out in more detail how age affects your car insurance premiums.
#11. The Insurance Firm You Choose
You can lower your premiums by picking the cheapest and best car insurance companies. According to research, average rates tend to be more than twice as high for the most expensive firms compared to the most affordable car insurance company. That’s why it’s imperative to shop around for and compare car insurance quotes before settling on one.
Several factors influence your car insurance rates. These include:
- Gender and age
- Where you live
- Marital status
- Driving history and activity
- Credit score
- Vehicle size and today, even the colour
- Age of the car
- Likelihood of theft
Auto insurance companies factor in various characteristics when determining your insurance premiums. These features include:
- Your address
- Your age and gender
- Your education
- Where you park your vehicle
- Insurance claims you’ve made
- The coverage you choose
- The discounts you go for
Yes, they do. A Mercedes Benz will have higher premiums than a Honda Fit. The age of the vehicle will also be considered.
Older vehicles are more likely to be totalled in case of an accident. The cost of repairs for an older car would, therefore, be expensive. Thus, rather than catering for the costs of repairing, car insurance firms advise you on replacing the vehicle.
New cars, therefore have higher collision rates and the higher the coverage, the higher premiums.
Well, there are several things you need to consider to get lower car insurance premium rates. These include:
- Driving more carefully – if your record is clear and have no traffic violations the auto insurance company will offer you lower rates
- Paying your bill on time – ensure that you pay your annual premiums and any monthly payments on the due date
- Choosing the vehicle model carefully – when purchasing a car, you need to remember the sticker price and monthly payments aren’t the only expenses to keep in mind.
- Considering higher deductibles5 – they’ll reduce our insurance rates in the event of a claim
- Requesting for discounts – you can save on cash f you bundle up your auto insurance with the homeowner’s insurance if you’re an impeccable student or belong to a specific organization
Paying for car insurance is a significant part of the expenses that come with owning a vehicle. Therefore, anything you can do to lower the auto insurance rates will be beneficial to your pockets. Most car insurance companies also provide you with discounts if you buy homeowner’s insurance or renter’s insurance. Thus, be smart and make the right moves for the best auto insurance experience!