/Factors that insurance companies consider to calculate car insurance premium

Factors that insurance companies consider to calculate car insurance premium

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The car insurance market is highly competitive, and you must do some shopping to get affordable car insurance cover with good benefits. You must understand the factors that affect your premium. The car insurance companies use some algorithm to evaluate the risks that point to the probability of filing claim.

They consider some factors like the personal information of the driver like the gender, age, driving habits, and driving history as well as the type of vehicle including its model, make and year of manufacturing. The more favorable these factors are, lower would be the risk, and consequently, lower is the premium. Unfortunately, most of these factors are beyond your control except for the choice of car.

Car insurance companies always charge a high premium for risky drivers and risky vehicles.  The insurance companies see how safe the vehicle is and usually newer models with advanced safety features are more reliable and safer and attract discounts on premium. Moreover, how safe is the driver is also a consideration because a driver with a poor driving record is highly unsafe and would increase the risks and insurance premium.

While it is possible to become a good driver by practicing safe driving that helps to lower car insurance premium, the other thing that you can do to keep premium low is to buy cars with good safety features at budgeted rates. Cars like Toyota Prius, Honda Civic, Honda Accord and Ford fusion priced under $25,000 are good choices because the average premium of these cars is lower than cars belonging to the same category because of its superior safety features.

In this article, we will discuss how each of the factors points to the risk level and in turn, affect the car insurance premium. It will also help to understand how you could play your part to keep the insurance premium low.

Age of the vehicle

Insurance companies take into account the age of vehicles. Newer vehicles have higher value and attract higher premium while older vehicles that undergo depreciation loses its value considerably over the years for the first five years, and the corresponding premium would be much less too. The safety features of older vehicles are also outdated and increase the premium. The insurance companies use a set schedule to calculate depreciation of cars in order to calculate the insurance premium.

Make and model of vehicle

The make and model of the vehicle is also a very important factor that points to the safety features of the car that insurance companies consider to assess the risks of accidents and vehicle failures.  As carmakers are working hard to make vehicles safer, newer models would have advanced safety features that ensure safe drive and makes the vehicle less vulnerable to damages. Insurance companies rate vehicles that point to its safety features and assign a numeric symbol to denote the risk level.  The symbol captures a lot of car information like make, model, and year of manufacturing together with crash information and safety features that help to calculate the premium.

Therefore, if you are looking for more affordable car insurance, it is better to focus on car models that are budget friendly yet packed with advanced safety features that ensure a safe drive. Subaru is a popular cheap to insure car brand that can give you the pleasure of comfortable drive and affordable car premium.

Personal details of the driver

Car insurance companies consider young and very old male drivers riskier and therefore, the gender of the driver as well as the age is a factor that influences car premium. Drivers below 25 years or above the retirement age belong to the group of dangerous drivers according to the insurance companies and must pay a higher premium.  However, elderly drivers can benefit from their experience and driving history to keep the premium low. On the other hand, women drivers are less risky and pay a lower premium. The marital status is also a factor that can help to lower premium because some insurance companies offer a discount on the premium to married couples.

Driving record

The most significant factor that affects car insurance premium is the driver’s driving history. If you have a poor driving record with incidents or traffic violations, accidents, drunken driving arrests, and conviction, it is a clear sign that you are not at all a dependable driver. It shows that you do not care for the safety, and this increases the risks which push up the premium. Good driving habits can bring down the premium, and insurance companies pay a lot of attention to the driving history to ascertain the driving habits.

In addition, the mileage or distance driven is also a factor for calculating premium because the more time the car is on the road, higher are the chances of damages.  Keeping lower road exposure should help to bring down the premium, and the closer is your workplace to your home better it would be for lowering car insurance premium.

Your car insurance history

Most car insurance companies offer renewal discounts to its existing customers, and the longer you continue with an insurance company more discounts you earn over the years. And this can make a substantial difference in the payout even though it does not lower the premium.  In worst case scenarios, even if you do not get a discount at least the premium will not go up.

Your location

Whether you live in an urban or rural area influences your car insurance premium. Urban areas with a larger population are riskier for insurance companies due to higher chances of car thefts and accidents. Although rural areas carry less risk, it could be a risky place too if the weather of the place is bad like it is prone to earthquake, storm, and rain that can damage vehicles. Even some state laws stipulate higher car premium that other states.

And lastly, your credit score is also very important because it influences car premium. Insurance companies equate higher credit score with lower risk and hence ready to charge a lower premium for auto insurance.

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(CEO / Editor / Journalist) – Bruno is the owner and CEO of Motorward.com; he’s responsible for the entire team, editorial guidelines and publishing. Bruno has many years of experience in the auto industry, both managing automotive websites and contributing to the press.