How is car insurance calculated?
We take a look at some of the common factors that insurance companies use to determine the cost of your car insurance.
The amount you pay for your car insurance policy is a reflection of how likely the insurance company believes you will file a claim, and how much that claim will cost.
Here is a summary of some of the key factors that will help determine how much you pay and how you can reduce it.
1. Your age
Age is one of the most important factors used by insurance companies. Generally speaking, younger drivers have less driving experience than older drivers, and therefore are statistically more likely to be involved in an accident.
This means that drivers between the ages of 17 and 25 generally face the highest premiums. The problem here is that it is a factor that you cannot change.
It is widely believed that drivers who have turned 25 immediately receive lower insurance rates. This is not always the case, but there are other ways for young drivers to reduce their costs.
2. Your profession
Some occupations mean you spend more time on the road, carry important equipment with you, or work in high-risk areas.
Due to the statistical nature of insurance pricing, very similar occupations often have a noticeable price difference.
For example, being a “corporate manager” may be more expensive than being a “corporate manager”.
This is why it is important to be as specific as possible when describing your profession.
3. The car you drive
As you might expect, the type of vehicle you drive will have a significant effect on how much you pay for your insurance.
There are a few things you need to keep in mind when looking at this:
value
The more expensive your car, the more expensive it will be to replace it if it is stolen or written off in an accident.
The cost of repairing more expensive cars may be more, especially if they are scarce and contain expensive parts.
But don't assume that just because your car isn't worth a lot, it will be cheap.
Not only is insurance for damage to your vehicle - but it also protects other road users from the accidents they may cause.
Energy
The faster and more powerful your car, the more likely it will be in an expensive accident. In general, the larger the engine of your vehicle, the higher the insurance costs.
Adjustments
If you have modified your vehicle to make it more powerful or to look different, you must inform your insurance company.
You will likely increase your premium, but if you don't tell them your coverage may be invalid if you file a claim in the future.
Read more: modified car insurance
the desire
If you own a particularly desirable car, your insurance company may consider you to be more likely to be stolen. Improving your vehicle's safety can help offset this - or get an uglier car.
4. Where do you live
Zipcode also affects the cost of car insurance.
If you live in a built-up area where the risk of accidents is generally greater, you will pay more. The same applies if you live somewhere with high levels of auto crime.
This can vary even between nearby postal codes. Prices for a car two streets away could be much higher because it is close to a very dangerous stretch of road, for example.
5. Security
Alarms, motion stabilizers, or other built-in security may help reduce your premium because it has the potential to deter thieves.
Additionally, where you keep your car when not in use will affect your insurance premiums.
If your car is parked on the street it is more likely to be stolen. But if you keep your car in a security-controlled parking or a secure garage, you may find your insurance premiums reduced.
6. How you use your car
If you use your car for commuting, you will likely pay more for coverage than you would if you keep your car parked at home during the week as you will be driving more often and on more crowded roads.
Your annual miles are also considered. After all, the more you drive, the more likely you are to have an accident.
7. Your driving record and the bonus of no claims
Have you made any claims? Do you have any points on your license? These are important factors that insurance companies will take into account when calculating your premium.
When getting a car insurance quote, you will be asked for details of any claims you have made in the past five years. Even if you are not wrong, the claim will likely still pay your premiums somewhat.
If you have not filed any claims for a year or more, you should receive some form of No Claims Bonus (NCB).
Most insurance companies accept up to five years from National Commercial Bank, which may help reduce costs.
8. Your surplus
The more you agree to it, the cheaper your insurance will be.
This is because you take a greater risk. Any potential payments from your insurance company are minimized, and low-value claims may be uneconomical for you.
On the other hand, if you choose not to have a voluntary increase, the insurance company will have to pay the full amount - minus the compulsory increase - in the event of a claim. So you could face a higher premium.
9. The type of cover you are buying
There are three levels of vehicle insurance coverage:
Third-party only
Third-party, fire, and theft
comprehensive
The third-party offers only the basic level of protection, while the comprehensive adds additional levels of coverage.
You'd think the higher the level of coverage you are looking for, the more expensive your premiums will be, but this is not always the case.
It's worth checking the price you'll pay for each level of coverage, as some drivers find they can get more for less!
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