Key Details for Car Insurance Premium Calculations

Several details are considered while calculating auto insurance premiums. They are mostly related to the applicant, drivers included, vehicle and zip code. Companies need several key details so that they can offer a precise quote based on individual auto owner’s coverage requirements and circumstances. No two policies are exactly alike, inasmuch as no two fingerprints of two individuals are alike.

Automobile insurance rates are computed by an army of mathematicians and statisticians, who weigh the financial risks. Then, those rates are applied to an individual policyholder. As a result, premiums reflect the risks associated with covering a particular vehicle owner with additional drivers, in a certain zip code with a particular auto.

In the old days before computers, insurers relied on pre-computed insurance rate tables to calculate the premiums they would charge for each policy applicant. Since the mathematics behind tended to be complicated, they could only assess a few variables in computing rates.

Nowadays, premiums are calculated by supercomputers which can handle or factor in tens of variables (representing the characteristics of the applicant). After feeding this information to the machine, it turns out an assessment almost immediately in the form of an auto insurance quote.

Here are some of these factors that figure in the computation;

Car-dependent variables

Car-dependent factors are an assessment of risk factors inherent in the vehicle as it stands. These are make, model, age, safety features, and of course, the actual value of it. Most of these details are stored in the Vehicle Identification Number, which is normally asked while getting a quote. Otherwise, people would need to enter them one by one. 

  • Safety records

Insurance companies may rely on the safety rating of a car (which is assigned by a duly recognized third-party industry body or state authorities) to compute the price of their policies. The higher the safety rating of a car, the less insurers would charge.

  • Market value

The more expensive a car, the higher are the rates applied. Luxury vehicles are of course the most expensive to insure, while minivans and sedans tend to get inexpensive automobile insurance rates. Also, aftermarket additions (e.g., sound system, custom parts, electronics) will increase the value, and therefore the costs. However, installing a security feature on the car can cut down rates.

  • Mileage

The more frequently or the longer an auto is driven during an average period, the higher are the premiums. Some companies even offer discounted insurance policies for vehicles not driven for a certain number of miles. Motorists should keep this point in mind, find out their usage and see if they could qualify for lower rates. 

Driver-dependent variables

These are risk factors attributed to the behavior of the driver:

  • Driving history

A poor driving history (being involved in an accident, DUI, etc.) will mean higher premiums. Conversely, a long history of safe driving will net cheaper vehicle insurance quotes.

  • Age and civil status

Actuarial studies (insurance statistics and math) show that young people, especially men, tend to be reckless. Therefore, they are usually charged higher premiums. Also, married people are likely to make fewer claims, so they could get cheaper premiums.

Location-dependent factors

Other factors that could affect car insurance rates are the crime rate at the community, likelihood of extreme weather events in an area, or if the vehicle is sheltered or parked in a driveway. That is why one of the first details required is the zip code. 

Computing auto insurance rates have become so complex, there are even methods that look at the driver’s educational, occupational, and credit backgrounds. However, the most important aspect is still the applicant’s driving history so safe drivers can still get the cheapest car insurance rates. And they can shop around freely to find the best deals.

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