How Car Insurance Premiums are Calculated?

Car insurance premiums may seem to be a foreign language to you. Understanding the terms is the first step in comprehending how they are calculated. There are a range of factors that can affect how they come up with the cost that they pass down to you.

Below you will find a quick breakdown of the main questions that the agent will want answered. If you are applying online through a web portal the steps will be the same, just faster with less issues.

All the information will be gathered and entered into a system that will run an algebraic equation to come up with a risk rating. Your specific risk rating. That rating will put you into a category that will have a set premium amount.

  1. Age – Your age is a key factor when it comes to calculating premiums. When you are a younger driver, usually under 25 years old, your premiums will be higher than normal. The ages between 25 and to 29 go down a little, then 30 to 39 is lower, until you are over 50 which is the age sector that has the lowest premiums. This only applies to you if no other drivers are listed for the car.
  2. Gender – Yes, it is understood that all people should be treated the same, but when it comes to car insurance agents, they judge you due to the statistics that can be found on male vs. female drivers. Male drivers are more likely to take risks and are more likely to be in accidents that have fatalities. The facts show that males are higher risk, so it has been added into the premium.
  3. Vehicle-The type of vehicle that you drive can cause your premium to go up, or down. If you drive a shiny sports car your premiums will be higher than if you drive a compact car loaded with safety features. The age of your vehicle is also considered. The older cars have a lower premium cost, especially if you search around on an online comparison sight to find cheap car insurance
  4. Security-Other than the obvious security installations on your car, the insurance company will rate you on where you live, and where you park. If you live in a neighborhood where crime is low, your premium will reflect it with a small discount. If you park in a garage, the same thing will apply. If you live in a bad area and park on the street your premiums will be higher.
  5. Driving History-This is a big one. The better that your driving history is, the cheaper your rates will be. You can even take a defensive driving course in some areas to reduce your premiums. If you took drivers education in school, you would get a lower rate. Anything that shows you are a safe, defensive driver will get you discounts.
  6. Kilometers-The more you drive, the higher your premiums will be. The agent will once again use data gathered from the nation and show that the more that you drive on the roads, the higher the chances are that you will be in an accident. If you barely drive your rates will be extremely low.
  7. Add-Ons—Every extra that you add on to your policy will increase your premium. Only add the ones that you absolutely need. Be sure to review your policy every year before renewing it. Make changes when you can to lower the number of extras on the policy that you do not need.

The amount of the premiums can fluctuate up and down depending on a lot of different information. It can even change on you throughout the course of the contract. If you get some tickets, or happen to be in an accident, your coverage will go up.

That is one reason that it is suggested that you pay a year’s premium at a time. That way it will not go up until the next cycle, which means you can check around for a lower quote if your current carrier chooses to raise your premiums higher than they already are.