How Exactly Are Car Insurance Rates Calculated?

How are car insurance rates calculated - 4993992It is illegal in most countries to drive a car without insurance and this creates a huge demand for competitive insurance rates. To meet this demand there are a multitude of insurance providers available to drivers and finding the best policy can be very difficult.

There are a number of factors which affect insurance rates, and it is important to do your research so you know if you are being offered a good deal or not. In order to help you make the right decision, let’s break down how exactly car insurance rates are calculated.

Factor 1: The Age Of The Driver

The first main factor affecting insurance rates is the age of the driver. Because statistically there are more accidents involving young drivers than older drivers, their premiums tend to be higher. In many countries the age when drivers are longer bracketed as the youngest is 25. Before that age, perceived inexperience and a lack of care means that insurance companies tend to consider them a higher risk group. If you are a young driver or you wish to add a young driver to your policy, you should expect higher rates.

Factor 2: The Value And Power Of The Car

The second factor that has a big bearing on insurance premiums is the value and power of the car. Insuring expensive cars, as is true when insuring any expensive or luxury item, costs more than insuring a cheaper car. This is because if the vehicle is involved in a crash, the insurance company will have to pay more money to have the car repaired or replaced. If you want to know about the potential cost of insurance before buying a new car you can find more info here on what your rates are likely to be.

The power and performance of the car also affect the cost of insurance. If the car has a big engine and is capable of high speeds, the cost of insurance will go up as there is more chance of a crash at high speeds. If you modify your car to increase its speed and performance, you must notify your insurance company or you could be in danger of invalidating your policy.

Factor 3: The Record Of The Driver

A very important consideration that insurance companies make when offering a policy price is your record as a driver. If you have many years of no claims, then in many countries you will be eligible for a ‘no claims’ bonus. This is a recognition that you are probably a safe driver and not eligible for convicted driver insurance as you have not been in any accidents which have required an insurance payout.

Also, if you can prove that you do not drive the car often or very far by giving evidence of your car’s odometer, that can also make a big difference in your insurance rates.

Factor 4: The Types Of Insurance Selected

The type of insurance that you select also has a major impact on the rates of your policy. A more comprehensive policy may cover your car for accidents, theft, damage and even natural disasters. Comprehensive policies cost more as there are a greater number of potential incidents for which the insurance company will be obligated to pay out.

On the other hand, basic liability insurance is usually the bare minimum that allows you to legally drive your car but be aware that this usually covers in case of an accident that was your fault where a payout will be needed.

Factor 5: Where The Car Is Usually Kept 

Where you keep your car at night or the parking you use when you drive to work is also a major factor in the cost of your policy. If you have a secure gated private driveway at home or a car park with security at your office, then logically there is less chance of your car being stolen or broken into.

The premiums that you are offered will reflect this security and your policy will be cheaper than if you park your car on the road. Remember that if you move house or change jobs and your parking situation changes, notify your insurance company of the changes as you may get a reduction in your rates.

There are so many car insurance providers and so many factors go into their calculations that it is absolutely vital that you do your homework and shop around. Never accept the first quote you receive. These days there are so many insurance providers and online comparison sites that you can easily find the best policy for your car.

Remember to be absolutely honest with your insurance company or if in the unfortunate event that you do need to make a claim, you may find you have invalidated the policy. Insurance is very important and provides protection and peace of mind.


Interesting related article: “Must I add my child to my vehicle insurance?”