How is a car insurance premium calculated?

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In a nutshell...
  • Insurance companies use specific factors to calculate your insurance premiums
  • Some factors, such as your age, are out of your control
  • Keeping your record clean of traffic violations is the single most important thing you can do to lower your insurance rate

When shopping for car insurance, one thing you will want to know is how a car insurance premium is calculated.

Knowing this information will help you to predict what your premium will be. There are several factors that go into the calculation of an insurance premium.

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Car Insurance and Other Forms of Insurance

Several factors are considered when insurance companies are calculating any insurance premium. Health and life insurance are based more on age, health history, and family disease.

Like health and life insurance, car insurance premiums are determined by the risk of death, with some exceptions.

Car insurance also takes into account liability to others, bodily injury liabilities, and loss of property.

Beneficiaries in life insurance policies only benefit when a person dies, but car insurance pays in the event of any level of accident, provided the damage is substantial enough to require repairs.

When searching for the best car insurance, you might want to look at the options for extra coverage.

While you don’t want to purchase more insurance than you can afford, you should consider which extras might be beneficial given your particular situation.

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Factors that are Considered in an Auto Insurance Policy

As mentioned before, there are a lot of factors in a car insurance policy.

These factors include:

  • Age and demographics of the insured  The age and demographics of the person applying for insurance are considered due to the correlation between certain ages and the risk of accidents. For example, males age 18-25 have the greatest risk of bad accidents of any age group.
  • Traffic record and traffic violations  The most important factor in determining the cost of insurance premiums is your driving record. Forbes magazine explains why this is the single most reliable predictor for accidents and why insurance companies put so much stock in it.
  • Make, model, and year of the car  Some cars are statistically more likely to be in an accident than others. Sporty cars, cars with special turbo engines that tend to go faster, and even red cars have a tendency to be more accident-prone.
  • Amount of coverage  Your car insurance premiums take into account the amount of coverage you want. Obviously, if you only ask for the state minimums and no uninsured coverage or extra add-ons, then you are going to pay much less than if you added additional liability or bodily injury, medical, or comprehensive coverage.
  • Other factors  Insurance companies may consider other factors that they believe may influence your risk. Shopping and comparing different types of policies with various companies will give you an insight into the options that are available to you.

How do I check my car’s value?

One of the factors you should know before purchasing insurance is the value of your car.

Kelley Blue Book has an instant value calculator that can tell you what your car is worth based on the condition, year, make, and model.

This information is valuable when you are shopping for insurance because you need to know how much you need to cover your loss in the event of an accident, theft, or unforeseen event.

Tips on Keeping Your Insurance Premiums Down

Since the factor that most influences the cost of your premium is your driving record, the best idea for keeping your insurance premiums down is to keep your driving record clean.

If you have several traffic violations or have had an accident that was ruled your fault, your premium is going to be much higher.

Pay attention to all the different ways you can cut the cost of your premiums.

Discounts on Car Insurance

While car insurance is expensive, almost every company will offer some form of discounts. These discounts are based on a lot things like your age and how careful you are on the road.

Many companies offer the following types of discounts:

If you think you might qualify for any of these discounts, be sure to ask an insurance agent.

As you shop for car insurance, keep in mind that insurance specialists know their stuff, but they cannot read your mind. Enter your zip code below for FREE car insurance quotes today!

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