How Are Auto Insurance Premiums Determined?

When you get an auto insurance quote it is just a number. A quote doesn’t answer many questions on its own. Are you being charged a set rate or how do your rates are differentiated from another driver? You naturally wonder how are car insurance premiums calculated. How companies arrive to premium figures can shed some lights on how policyholders can manage to reduce costs.

   Do Insurance Companies Categorize Drivers?
Automobile insurers group motorists with similar characteristics and evaluate the chances of someone belonging to that group making a claim on his/her policy. These predictions are made based on statistical data and past claim experience from the same group. When you apply for a car insurance quote you would fall into a certain group and you would be charged the rates applicable to that group. Your age would the fist category and you would be charged accordingly if you are a teenager or more mature driver. And you may be categorized as good, average or high risk driver.

   How Are Vehicle Insurance Premiums Calculated in Light of Personal Details?
Your personal details will be taken into account in accordance with your state laws. This is where things start getting a lot personal (rather than being part of a group). For example your credit history is looked at and your are categorized accordingly like poor, good, excellent. Your rate may differ a lot depending on which category you fall in; a person with good credit or bad credit.

   How Are Auto Insurance Premiums Calculated in Light of Cars Insured?
Your premium would also be affected by the type of car you drive. Everything being equal you would be charged much more if you were driving a sports car in comparison with a family sedan. They are obviously more dangerous and they affect your rates. So, if you want cheap rates you should be looking for cheap to insure cars.

   Other Factors
Your driving history, age, gender, residential address and yearly mileage are some of the other factors that affect your premiums. For example, you are charged a different rate in different states and you are charged higher rates in the cities that where you live matters for car insurance.

At the end insurance company would determine if you are a high, low or acceptable risk for them. The higher the risks associated with insuring you the higher the premium would be. Therefore, it is fair to derive to conclusion that you will need to reduce the risks associated with insuring you particularly so that you can get cheaper quotes. For example, make sure your credit score don’t drop to alarm insurers to charging you more.

Here is another topic that explains the same question and there are nice explanations there. Hopefully, it will explain how auto insurance premiums work and calculated. Companies make money from assessing the risks associated with driving and owning a vehicle. If they get it wrong they loose money and if they are good at their jobs they make profits. In fact, to the contrary to common belief, many companies do loose money year after year.

Share on Pinterest
There are no images.