What Determines a Car Insurance Premium?

By Bill Herrfeldt

  • Overview

    Whether you are buying automobile insurance for the first time or you are an old hand at it, there are many things that will determine what your insurance premium will be. Aside from the various coverages that your policy may contain, the size of your premium is a function of your history and where you live.
  • Geography

    A lot of the cost of an automobile policy depends on where you live. More specifically, where the car is parked overnight will determine what you will pay. If you live in a big city where there are more thefts and accidents, an insurance company will pay more claims so your insurance premium will be higher.
  • Personal Statistics

    Things about you, such as your age and gender, will be considered when your premium rates are set. Your marital status will also be considered because married people traditionally drive more safely than singles. It is important to note that all automobile insurance companies have amassed a lot of statistics. For example, an unmarried male who is under the age of 25 is far more likely to be involved in an automobile accident than a female of the same age. Finally, your driving record will have a lot to do with what you will pay for your automobile insurance. If your record is clean, you will pay less for your insurance than if you have a lot of accidents and moving violations.

  • Your Credit Rating

    Like it or not, most automobile insurance companies will check your credit record before assigning a cost to your policy. They reason that if you are lax in handling your financial affairs, you most likely are less careful behind the wheel. Because insurance companies rely so heavily on your credit report, it behooves you to get a copy and ask the credit bureau to correct whatever is wrong with it before you apply for automobile insurance. By doing this, you could save hundreds of dollars each year in premiums.
  • Your Stability

    Your answers to the questions you are asked when you are applying for automobile insurance allow the insurance company to look into your stability before assigning your premium. For instance, have you been at the same job for long, or do you go from job to job? How long you have lived at the same address? Those questions allow the insurance company to judge your overall stability. They reason that if you change jobs or residences too frequently, you are a higher risk and you will pay more in premium
  • Type of Car

    What you drive will affect what you will pay in premium. For example, if you drive an expensive, fast sports car, you can expect to pay a considerably higher premium than you would by driving a slow, cheap car. The insurance companies reason that you will go faster if you drive the fast sports car, and it will be more expensive to repair if it is in a accident.
  • Level of Coverage

    This is not the least important factor in determining your automobile insurance premium. Although you must comply with the minimum coverages mandated by your state, you can control the amount of your premium. For example, you can select lower liability limits or higher deductibles to keep your premium low. Or, if your car wasn't financed or you have paid it off, you can choose to not have collision coverage, which will save you money. The problem is that if you are in an accident where your car is demolished, you will have to pay to have it replaced.
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