How Are Car Insurance Premiums Determined?

Car insurance premiums are far from a monolith. In fact, everyone has a variety of important factors and attributes that affect how much they’re charged in car insurance premiums every month. Despite what advertisements might say, car insurance companies can decide to charge you a certain amount for all kinds of reasons, not just your age or car type.

Want to know more about how car insurance premiums are determined? Let’s break it down in detail.

Personal Attributes

Car insurance companies first look at your personal attributes or characteristics. These are statistical factors that increase or decrease your mathematical likelihood of getting into an accident. These factors include:

• Age. Younger people are typically riskier and have less driving experience, so they pay more.

• Gender. Men are also usually riskier drivers than women, plus drink and drive much more than women. So men usually pay more for car insurance premiums.

• Eyesight and other physical factors. Those with better eyesight and without serious medical conditions will pay less for car insurance premiums since they’re less likely to get into an accident.

Note, however, that other personal factors like religion or race cannot be legally considered when calculating your car insurance premium.

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Driving Habits

Your driving habits can also affect your car insurance premium rates. Driving habits factored into premium calculations include:

• Mileage or how often you drive. The more you drive, the more statistically likely you are to get into an accident purely from being on the road more often. Therefore, those who don’t drive very often can usually get low mileage car insurance with cheaper premiums.

• Car type. Your car type can affect your premium rates. For instance, more expensive cars may be more likely to be stolen or may require more expensive repairs. Older cars might also need more frequent repairs and, therefore, drive a higher car insurance premium rate for you.

• Accident history. Naturally, if you have a spotless driving record, you’re probably a safe driver and will pay less for your car insurance premium. The reverse is true if you have had a history of unfortunate driving accidents.

Financial Factors

Lastly, car insurance companies will also look at financial factors when calculating your premium rates or deciding if you’ll get an insurance discount. Some of these factors include:

• Credit history. Banks aren’t the only institutions that look at your credit report. Car insurance companies will check your credit history to see if you are a trustworthy borrower and, therefore, more likely to pay your premiums when charged.

• Type and amount of auto insurance coverage. For example, the amount of your deductible or the limits on your basic auto insurance can affect your premium coverage rates.

As you can see, there are all kinds of factors that car insurance companies use to calculate how much they should charge you for your premium. None of these decisions are ever made personally; insurance companies use algorithms to calculate a premium rate unique to you.

But hopefully you now have a better understanding of why your car insurance premium may be higher or lower than average.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes