How Is Auto Insurance Calculated?
Insurance companies consider various factors when they calculate your auto insurance premiums. Your age, marriage status and gender provide a starting point and give a broad idea about how risky a driver you might be. Your past driving record and the vehicle you drive are additional factors. The level of coverage you wish to obtain and regulatory fees provide further data, based on which your final rates are calculated.
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Basics
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The critical question when determining insurance premiums is how likely you are to experience an accident or theft, and how much money the insurance company must pay you in such an event. The first part of the equation is the risk factor and involves an educated guess. Based on historic data about drivers in general, the insurance company tries to guess what level of risk you represent. To do so, they start with the basics such as your age, education, marriage status and how many miles per year you will be driving.
Driving Record
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In addition to broad clues, insurance companies check your driving record to assess how safely or dangerously you have driven in the past. Moving violations are weighted heavily as they suggest a higher probability of an accident. Factors such as defensive driving courses and the number of accident-free years in your driving record suggest a lower chance of an accident and eventual loss for the company, and therefore lower your premium.
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Location
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Since most accidents involve other vehicles, the insurance company is also interested in where you live. A crowded downtown area with heavy traffic is obviously a riskier place to drive in than a small rural town. The number of vehicles stolen or vandalized in your neighborhood is also considered as these events also represent a loss to the firm.
Co-drivers
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No matter how safe a driver you are, other people who may be driving your car could easily increase your premiums. In general, the more drivers in a household, the greater the probability that there will be an accident. A teenage son or daughter is an especially risky co-driver as teenagers are known to be involved in a larger number of accidents per mile traveled than adults. This is why you are asked who else will be driving your car before an insurance firm provides you with a quote.
Coverage
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In addition to risk, which is a measure of how likely an adverse event is to happen, insurance firms consider the payout, which represents how much money they stand to lose if the worst-case scenario should materialize. The market value of your car and how big a liability coverage you wish to carry (state regulations often mandate a certain minimum coverage) are the key factors that help insurance providers quantify the probable payouts and your premiums.
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References
- Photo Credit Coche accidentado image by quicolopez from Fotolia.com
