How do auto insurance companies determine your premium?


There are a lot of considerations and factors that the auto insurance companies look into in an effort to determine your premium. The point is that auto insurance companies provide you with a premium rate based on the kind of risk you present.

Here are the factors that affect your auto insurance premiums:

  • Type of car you drive and other details. This has its inherent level of risks. For instance, if you're driving an old model car, you are prone to breakdowns - and accidents. Also, a station wagon is considered a lower risk as opposed to a high-powered car.
  • Who will be driving the car. The insurance company will look at who will primarily drive the car. Here, your driver's history will come into play. The insurance will check if there are any negative hits on your driving history. Most insurance companies will look at your driving records as far back as three to five years ago. They will look if there are traffic violations, accidents and previous claims connected to you. If you and your family have good driving records, this will help to lower your premiums. If your teenage son who has just gotten his driver's licence is included in the list, then your premiums will more likely increase.
  • Insurance package. Of course, the level of insurance you get will affect your premiums. The higher the coverage limit, the higher the premiums. The broader your coverage, the higher your premiums as well. For instance, most states just require you to get liability insurance. Collision and comprehensive insurance are optional.
  • Deductible. This depends on just how much money you agree to "put in" as part of the claim - this is your portion of the claim. When you opt for higher deductibles, you will be given lower premiums.
  • Credit rating. If you have a good credit rating, this will be a positive point for you. You will have a lower premium rate. However, if your credit rating is low, the insurance company may deem you a "bad" risk and increase your rates. This is because the general rule for insurance companies is that those who are responsible with money are also responsible for other things
    (such as driving and car maintenance).
  • Past relationship with the insurance company. If you have been with the company for a long time and you have a good claims history, this will positively affect your premiums.
  • Geography. Where you live (and drive) will also be a consideration. High traffic areas are considered higher risks. Also, congested areas such as cities are more prone to car thefts.

Aside from these, the insurance company will check the use of the vehicle (whether for business or for personal use), whether you have had defensive driving lessons and whether you also have safety and precautionary measures such as anti-theft devices.

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