Understanding How Auto Insurance Companies Determine Premium Rates

Many people do not know how auto insurance premiums are calculated. Insurance companies decide premium rates by considering many factors based on risk. The higher the risk, the more the premium rate.

Generally, insurance companies favor those customers who are likely to be good in mitigating the risks. They charge more for those who are likely to get into an accident or file a claim to get compensation or recover. Many people often get shocked when they find the other person paying more or less with the same amount of coverage. Although it may seem unfair, but the truth is that, these premium rates are determined based on the risk analyzed by the statistical data.

The factors that affect your auto insurance premium rate are:

  • Your vehicle: The cost and type of your vehicle significantly affect your insurance premiums. This is one of the main factors on that your premium depends on. The newer the car, the more expensive is the premium. Every vehicle has some rating by insurance companies based on how risky the vehicle is to insure. There are many factors like year of manufacture, model, safety features- which are considered while determining the rate of the premium.
  • Your age: Based on the statistical data, younger the people are, the more prone to risky driving. Thus, if you are younger, the rate of premium will be higher. People below the age of 25 get expensive premium rates and the people above the age of 25 get lower premium rates. Mostly, we can see people of age between 50 and 65 tend to have the safest driving and hence low premium rates. According to statistical data, women drive more safely than men do.
  • The place you live in or drive: If you are living in a busy and populated area that has more probability of accidents and thefts, then you are likely to pay expensive premiums.
  • Your driving record: Your driving record also plays an important role in your auto insurance premium. If you are a high risk driver with history of accidents, violations, bad driving habits like driving after drinking etc. then you need to pay more for your auto insurance premium.

Understand these factors to ensure that you get a low premium rate for your auto insurance policy as every factor contributes to keep your car insurance premium reasonable.

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