Auto Insurance Quick guide: How Rates are Calculated
How Do Car Insurance Companies Calculate the Rates They Charge?
Depending on your jurisdiction, the insurance premium you pay, can be
either set by the government or determined by individual insurance
companies, based on a framework of regulations that are set by the
government.
Figuring out the insurance premium that an individual companies will
charge you, is a bit like putting different pieces of a puzzle together,
because car insurance companies combine a number of different elements
to arrive at your individual premium. The interesting part of it is that
they all have a slightly different way of looking at things, and this
produces a variation in prices between companies.
The following is a brief explanation of how the different elements may
affect your final insurance rate:
What kind of car do you drive?
Car insurance companies have two basic methods of establishing premiums
for your automobile. They use the relative claims experience of the
makes and models of automobiles to establish your insurance premium.
This means that they will check into the repair costs, the rate of
injury, and the likelihood that the particular car may be stolen, to
establish their risk and then price it accordingly. The current value of
your vehicle is another factor, and insurance companies use a variety of
methods to establish the current fair market value of your vehicle.
How is your vehicle used?
It stands to reason, the more you use your auto, the higher the odds
that you'll of be involved in an automobile accident at some time. So,
all other factors being equal, people who don't do much driving tend to
pay much lower premiums than than those that have a long commute to
work, or do extensive amounts of driving for other reasons. Also of
major importance, is who is using the vehicle.
Your automobile insurance premium costs will also likely be higher if
you have inexperienced drivers in your family or a number of different
drivers using the car.