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How Premiums for Car Insurance Are Calculated

Auto Insurance

When you’re looking to buy car insurance, it can be helpful to understand how premiums are calculated. Different companies use different methods of determining rates. Here’s a brief of some of the elements that go into calculating premiums and how they affect your rate.

Your Age

The older you are, the higher the chances your premium will be. The reason for this is simple: the insurer knows that older drivers are more likely to be involved in an accident or cause an accident than young drivers. One of the best ways to demonstrate to your insurance company that you are a safe driver is by following all the rules of the road. This way, you avoid costly traffic tickets and accidents. In time, your insurer will begin to lower your rates or offer you discounts as a reward for your good driving habits.

Marital Status

It may not seem like your marital status has much to do with your driving risk, but usually car insurance providers find that married drivers file fewer claims.

Sex

Insurance companies charge more for men than women due to differences in driving behavior between sexes.

Your Driving Record

Your driving record is among the most critical factors in determining car insurance premiums.

As you may be aware, car insurance companies take your driving record into account when determining your premiums. Your driving history is the best way for insurers to gauge your risk as a driver. In addition, the more you drive, chances are your risk of being involved in an accident is increased.

The Type of Vehicle You Drive

Many people don’t realize that the type of car you drive is a big factor in how much your premiums will be. This factor can be addressed from three perspectives:

  • The Cost of Repairs: If your car has an expensive engine, it will need more frequent repairs raising premiums.
  • The Replacement Value: Insurance companies consider how much it would cost to totally replace your vehicle.
  • Safety features: Luxury vehicles tend to come equipped with extra safety features. They add lessen your premium because of the saftey they provide, meaning you are less likely to be in an accident.

Your Insurance Claims History

Many insurance companies will consider your past claims history when calculating your premiums. If you have one claim on your record, the company may decide to raise your premium by a small amount. However, if you have had multiple claims, or if one of those claims was proven to be caused by someone else’s negligence, then the insurer is likely to raise your rates significantly.

Your Home and Where Your Car is Parked

Where you live, together with where you park your car, can have a significant impact on the premiums that you pay for insurance. A home address will be provided when you sign up for insurance, and this can be used when calculating your premium. Where your car will be parked when not in use has an effect on your premium. Some areas of the country have higher crime levels than others, and some are impacted by harsh weather conditions that can cause damage to vehicles. In most cases, housing your car in a garage will lower your insurance premium the most.

Your Coverage Selection

Your insurance policy will have various types of coverage, each with a different premium. The most basic and important type of coverage is liability coverage, which pays for injuries and property damage you cause to others. Depending on the state you live in, liability insurance may be mandatory. It’s always beneficial to consider the cost of your coverage vs what it actually covers, to ensure that you have the right amount of protection for every situation. Having more coverage is always better than not having enough.

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