Auto Insurance – What Determines the Price of My Policy?

How did the insurance company settle on a price for your auto insurance policy? The price you pay for car insurance was most likely calculated using many pieces of information specific to you and the vehicle you choose to drive. Generally speaking, insurance companies all use the same information in determining the price to charge for a certain risk, however, the weight each company applies to these individual factors may make a substantial difference in the price you pay.

Personal Characteristics:

Age.

In general age will be a larger factor for individuals under 25 years old. For drivers over 25 car insurance age classes are generally fairly broad, for example, 25-49 or 50-74.

Sex.

As with age, in most cases younger male drivers cost more to insure than a female of the same age. When age increases beyond 30 male and female prices are more comparable or even the same.

Credit.

Credit is a factor that only recently has become more prevalent in determining the price you pay for insurance. The use of credit for determining car insurance premiums has been legally challenged in some states and in some cases deemed as an unfair rating practice.

Experience.

The amount of years you have been continually licensed in the United States is used as a rating factor with some insurance companies charging substantially more for what they define as inexperienced drivers.

Tickets & accidents.

When it comes to determining the risk associated with a specific driver, ticket and accident history can provide an insurance company with a reasonable expectation of future claim activity. An individual with a number of driving incidents is usually determined to be a higher risk and therefore will be charged more for insurance.

Claims.

Although someone may have a few claims on their record that does not necessarily mean that person represents a higher risk to the insurance company. Claims such as windshield repair for rock strikes, towing, or claim payments for not at-fault accidents do not necessarily indicate more risk. However, some companies can and do use “claims frequency” in determining a personal insurance score for each customer and multiple claims even if not at-fault could have a negative effect on the calculated policy premium.

Where you live.

Car insurance policy prices are based partly on the territory in which the customer lives and drives. A policy in Cozad, Nebraska in theory will cost less than the same policy in Palm beach, Florida. The obvious reason is that the traffic density, car theft, storm damage, and lawsuit risk are much higher in Florida and therefore the price of car insurance should reflect that additional risk.

How much you drive.

Less time on the road means less exposure to the risk of accident and on the other side of the coin if someone drives 100 miles per day they are at more risk and higher exposure to accidents and the possibility of filing a claim.

What you use the vehicle for.

If the vehicle is used for business or to transport clients the risk is increased. For example a realtor who drives prospective home buyers around in their car all day is not only on the road more but is also at risk of being responsible or partially responsible for injury to the occupants of the vehicle. The price of insurance coverage increases when the vehicle is used for business pursuits. Additional coverage’s may also be needed to provide the insured with comprehensive protection from risks unique to business use.

Other people living with you.

Insurance prices are determined by exposure to risk. If other licensed individuals reside in your home and have access to your vehicle the insurance company may charge more money depending on these other individuals driving history and personal insurance coverage. If additional drivers are not disclosed to the insurance company in the original application and then are in an accident the insurance company may choose not to cover the claim because on material misrepresentation.

Vehicles Characteristics:

Engine size.

Many car models come in different configurations, such as, sport or luxury. A Ford Mustang with a 4 cylinder 100hp engine will be priced differently by the insurance company than the Shelby Cobra Mustang with the 350hp V8 engine. The potential performance increase also increases the risk of accident.

Value.

Although not as big a factor as many people may think it is still reasonable to believe that the potential loss of a $100,000 2010 Mercedes compared to a $2,000 loss for a 1995 Honda Civic will cause a high valued vehicle’s comprehensive and collision coverage cost more.

Safety features.

In most cases newer cars are equipped with more and better functioning safety features. This is important to the insurance company because the injuries the occupants of the vehicle sustain the less money will need to be spent on the medical portion of an insurance claim. Safer cars receive discounts on the medial and uninsured motorist portions of coverage.

Although each car is different the factors used to determine risk stay the same. Simply stated they are: How much does it take to fix the car? How much does it take to fix the people inside the car? How much damage can this car do to other people in other cars? The answers to these questions help each insurance company price the risk they accept when insuring your car.

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