Where do auto insurance companies base their premium charges?
We all know how important it is to have auto insurance policies as well as we are all aware of the benefits that it provides to motorists and car owners. Chances are if you have a car, you already have an auto insurance that comes with the car. Primarily it is because most states requires and mandates for us to have auto insurance so we can use and drive the car on public highways. We are all aware of the rules and regulations that come with owning a car and driving. One thing that most of us are not aware off is where auto insurance companies base their premium charges?
Depending on where you are located, the insurance premiums for your car is either dictated by the government or determined by the auto insurance companies using the framework of regulations that was set by the government. Most of the time, the insurer have more freedom in setting the price in terms of physical damages as compared to the mandatory liability coverage.
There are some cases that the premium is not based on the government guidelines, and the cost of the premium will then be based on the calculations that are based on statistical data. There are factors to consider when calculating the cost and that includes car characteristic, the coverage that was selected, and the profile of the driver plus the usage of the car. The coverage selected normally involves deductibles, the limit and the covered perils. On the other hand, the usage of the car would depend on if it is used to commute to work or the predicted distance driven annually.
The profile of the driver would normally be composed of age, gender and driving history. Gender is an important basis because it could determine through statistical analysis future accidents that the insurance companies have to cover. Men are proven to average more miles driven per year as compared to women. This means that proportionally speaking, they have higher accident involvement at all ages. Insurance companies therefore give lower premiums to younger women than younger men. However, as they approach adulthood, the rates would now become unisex.
Age is also a big factor in determining the premium that you have to pay. You can notice a significant difference in price for teen age drivers who have no driving record. Normally, they are priced higher than adults with good driving records and history. One way of lowering down the cost for teenage drivers is to get good grades on safety driving courses. By the age of 25, the cost of insurance will be lowered and senior citizens who drive are also eligible to get retirement discounts. This is because they have lower average miles driven as compared to any other age group. The marital status is also another factor as singles is charged higher compared to a married driver.
The type of vehicle is also another basis. People who have sports car, muscle cars, SUV’s and motorcycles are charged higher because of higher accident rates. Luxury cars also have higher premiums because the cost of repair when it is damaged is higher than regular cars. Some insurance companies also consider the distance covered by through reasonable estimation, odometer based systems, GPS based systems and OBDII based systems. The premise behind this is the higher your mileage and usage of the car, the higher premium you have to pay.
Knowing these factors would help us not only on lowering down the charges for auto insurance premiums but is also helps as a guideline when buying a car. With the recent economy and the need to save, it is important for us to find ways to fit the budget even in auto insurance premiums.