Introduction:
Car insurance is a legal necessity and essential for vehicle owners. Both third-party and first-party Insurance are required to provide financial protection. Without valid Insurance, you may face fines and legal consequences.
What Is A Car Insurance Premium?
Car insurance contains three factors: car, Insurance, and premium. Where a car is a vehicle that you use to drive as a mode of transportation, Insurance is a financial contract between a person or entity (Insured) and an insurance company (Insurer) to pay compensation for losses or any damage that occurred during accidents such as accidents, repairs, medical expenses, or third-party claims. In exchange, you (The insured) pay a small annual fee (sometimes monthly) called the premium.
But what factors affect your car insurance premium?
It is essential to consider everything while buying a car, from the cover offered to add-ons. We will discuss all the significant factors that lead to increased car insurance premiums.
List of Reasons Affecting Car Insurance Premiums:
1 – Driving History: A person’s driving history is the first and foremost factor determining car insurance premiums.
- Accident history
- Loss of points
- Type of driving offences
- Recency of driving offences
A driver with clean driving records and no accidents or traffic violations usually lowers premiums. On the other hand, your driving records, like traffic violations, fines, speeding, running a red light, drink-and-drive, and hit-and-run cases, significantly hike premiums due to risky behavior.
2—Location: Where you live also affects your premium. Your insurance costs are impacted if you live in an area with higher crime rates or accident-prone areas like hills. Insurance costs are usually calculated based on the number of claims in your area.
Special Note— Typically, premium costs are higher in urban areas than rural areas, even after the studies say that in 2022, rural crash death rates were higher than urban rates (1.68 vs. 1.15 per 100 million miles). People in urban areas tend to buy more Insurance than those in rural areas. Due to this supply-and-demand factor, insurance companies charge lower premiums to rural people.
3 – Vehicle Type: Your vehicle type impacts insurance cost. It includes;
a. Car Model: Luxury cars require expensive repairs and are usually stolen more, which leads to higher premiums, whereas economical cars require low repair costs. Meanwhile, sports cars are used for racing, and higher accident risk increases the premium.
b. Car Age: The premium impact due to car age could be classified into two parts: first, a new car’s premium is higher due to its higher repair cost and high market value and vice versa, and second, a rare or vintage car requires a higher premium due to its unavailability of parts and rarity.
4—No-claim bonus: A no-claim bonus (NCB) is a reward given by insurance companies for not making any claims during a specific policy period (usually one year). It allows lowering premium rates by 20% to 50%.
5 – Age and Gender: Who engages in reckless driving: men or women? Is it the younger generation or the older people? If you believe that “younger men” are more likely to drive at high speed than others, you are correct. WHO reports say male drivers under 25-year age die 3 times in accidents than women of the same age. As a result, insurance premiums for young men are higher than those for other demographics.
6—Add-ons: Additional benefits or coverage along with a basic insurance policy mean an increase in premium cost. Add-ons like zero depreciation, roadside assistance, coverage for personal belongings, return to invoice cover, personal accident cover, tire damage cover, and engine protection cover are some major add-ons that allow you to customize your car insurance policy according to your terms but increase premium charges.
7—Loyalty Discounts: Loyalty Discounts are incentives provided by insurance companies for long-term relationships or people choosing bundle insurance (health, car, home, life) from one single company. Such discounts help increase customer retention rates.
8—Marital Status: Believe it or not, marital status also affects your premium. Most likely, married couples don’t drive recklessly due to family responsibilities and even don’t drive too frequently.
9—Profession: Suppose you are an Uber driver, and your brother is a doctor working in a hospital. Who do you think should pay more car insurance premiums? If you say car driver, you are right. The more you drive, the more risk for accident, car damage, repair, maintenance, and service increases. On the other hand, if your profession is seen as careful and calm people—doctor in this example—you may be able to reduce the premium.
10—Vehicle Usage: In the United States, the average vehicle covers approximately 13,500 to 14,000 miles per year. Driving less means less risk of an accident and a lower premium.
11 – Car Color: Not all but a few policymakers take car color into account while quoting a premium. A study by “Monash University Accident Research Centre” says white cars have a lower chance of getting into accidents than cars with colors like black, blue, grey, green, or silver because these colors have slightly lower visibility rates.
Example: Suppose your car is black — will it be visible in the dark?
So, next time, before buying a car, make sure that you are purchasing a white color car so that you don’t need to pay extra premium charges.
Tips To Reduce Premium:
- Take time to compare quotations.
- Ensure to buy directly from the company and ignore buying through a third-party agent.
- Avoid reckless driving.
- Choose a high-visibility color car.
- Sign up through a referral or affiliate link to get some exclusive offers.
- Maintain clean records.
- Take advantage of loyalty and no-claim bonus.
Conclusion:
Finally, we have come to an end. If you read the whole article, you must know how exactly car insurance premiums are determined. From the type of car, driver’s profile, coverage level, claim history, to external factors like location, everything matters in determining your premium.
If you feel we have missed any point or you don’t agree with anything written here, you can help us by using the comment section. We will make sure to update this article accordingly to help everyone better.
