Insurance companies use proprietary algorithms to calculate the premiums for auto insurance. The algorithm takes multiple factors into consideration so that the premium calculation can be unbiased (as much as possible). While we cannot completely determine the weightage of each factor, we sure can discuss them in detail to understand how each factor influences the car insurance premium.
Shall we look at the most important factors that impact vehicle insurance and can help lower the premium price to save money?
Table of Contents
Factors Impacting your Car Insurance
- Driver’s History and Record
Insurance companies categorize customers as low-risk, moderate-risk, and high-risk based on their driving history and past claims. A customer involved in driving accidents and with speeding tickets is tagged high-risk. The risk factor increases if the person files multiple claims per year. The insurer will either increase the premium amount or deny the insurance policy altogether.
- Defensive Driving Certification
Defensive driving certification is mainly helpful for teens and seniors, though it is useful for everyone who wants to get a discount on the premium amount. Completing the defensive driving course implies that you are a low-risk driver and are less likely to be in traffic accidents or collisions. However, remember that the insurance companies don’t value defensive driving certificates for more than one or two renewals at the most.
- State/ Locality
Your city/ state also plays a role in determining the premium price. For example, the premium in a metro city would be higher than what you need to pay in a town or a tier 3 city simply because of the difference in the cost of living in both regions. The repair charges will be higher, which means the claim will be more, and thus the insurance will also be expensive.
- Age of the Vehicle
Aspects like the manufacturing date and registration date of the car also determine the premium. Older cars have a depreciating value and attract more repair costs. There is also difficulty finding the spare parts, especially if the model has been discontinued. However, this can be a positive aspect as older are insured for lesser amounts. Most car owners with outdated models opt for third-party insurance and pay only the minimum required premium.
A deductible is a money you pay out of your own pocket when filing a claim. The compulsory deductible is nonnegotiable. The voluntary deductible allows you to increase the deductible amount to lower the premium. Good drivers can choose a higher voluntary deductible and save money on premiums.
- Number of Coverage Selections/ Add-ons
There are numerous auto insurance coverage and add-on selections available in the market. For example, comprehensive insurance includes liability coverage, roadside assistance, and other add-ons that provide complete protection. This will naturally increase the premium as you have to pay for more choices. New and expensive car owners need to choose comprehensive insurance, while old/ cheap car owners can make do with third-party liability coverage.
- Poor Credit Rating
Your credit rating plays a substantial role in finalizing the premium amount. Though there have been complaints that using credit rating as a yardstick is not fair, it is still one of the factors in many states. Insurance companies fear that customers with a poor credit rating may not pay the premium on time or file too many claims. They categorize such customers as high-risk and increase the premium to safeguard their interests.
- No Claim Bonus
Also known as NCB, this is a special discount offered for existing customers. The insurer can provide an NCB discount to those who haven’t filed a single claim the previous year. The discount is offered on the renewal amount and can be substantial. If you wish to avail of this discount, think twice before filing a claim for minor repairs. It might be beneficial to pay from your pocket and earn a better discount.
- Personal Factors
Non-driving or personal factors like your age, marital status, gender, occupation, etc., are given a little importance by the insurance company. For example, a slightly older married man will have to pay a lesser premium than a younger and single male. The difference increases as the person gets older. However, this is applicable only if the driving records of the couple are good and don’t cause any alarm. A few consumer advocacy groups have called these factors discriminatory.
- Security Devices Installed
Does the car have any additional safety and anti-theft devices that make it more secure? If yes, the premium can be lowered by the insurers. A car with an anti-theft device is less likely to the stolen. The insured doesn’t have to file a claim, isn’t it? Just make sure that the safety devices are recognized by the industry so that you can ask for a discount on the premium.
You can easily find cheaper car insurance rates by talking to independent insurance agents to get quotes from more than one insurer. Insurance agents will also help reduce the premium amount by suggesting ways to claim discounts.