Making Sense of Car Insurance Premiums
Every month, six months, or even once a year if you can work it, you have to pay a fee to keep your car insurance policy active. This regular fee is known as a premium. When you get car insurance quotes, you are seeing which company offers the lowest premiums. Unfortunately, these premiums are not set in stone—they can increase each billing period. So, how exactly are car insurance premiums calculated?
Computers. Computers with lots of data.
Various factors relating to you, your vehicle, and your location are run through an algorithm to determine the probability of you filing a claim. Each company has a unique algorithm, but most of the factors are similar. The car insurance premium you pay is connected to the risk that you represent to the company. So, if you get in a collision or are arrested for driving under the influence of alcohol, you are going to have to pay more.
Let's take a closer look at some of the big factors.
The Factors
Location – Traffic and theft are the main reasons that location makes a difference. If you are in an area with lots of cars, like a big city, the chances of a collision are higher. Rural countryside, on the other hand, means collisions are rare. Theft is based on data, not just city type.
Personal Driving History – You can't teach an old dog new tricks, they say. And, since a zebra doesn't change his or her stripes, car insurers basically understand that the way you've been driving and the collisions you've gotten into will basically continue on into the future. Things like collisions and traffic violations will really crank up your car insurance premiums.
Credit – Your credit score and history have a strong correlation to your driving for some reason, so a high credit score saves you money and a low one costs you in premiums.
The Vehicle – How safe a vehicle is and how much it will cost to fix and replace the vehicle are major determinants of your premium. Used cars are cheaper to fix and replace, but they are rarely as safe as the current models.
You – How old you are, your marital status, and even your gender (sex) are important. A young adult, married woman is going to pay a lot less than a teenage boy.
Mileage – The less you are on the road, the less likely it is that your car will be smashed up. Low annual mileage will save you money on car insurance.