Home » How Do Car Insurance Companies Decide What to Charge?
If every year, you see a growing percentage of your household income disappear to cover the costs of car ownership, you are not alone.
In 2022, the average US driver spends over $1,775 per annum – or 2.57% of their income – on car insurance, and this cost is only bound to rise!
Understanding how car insurance companies set their rates can help you lower your expenses and get the most out of your new insurance plan. Let’s start with the 7 of the most impactful factors your insurer is going to consider when calculating your premium.
Your Driving Record Will Impact Your Premium
Your history as a driver will play a major role in determining how much you’ll pay. Simply, a driver with a record of many at-fault accidents and insurance claims represents a risk for insurance companies, which might charge more to cover the more-likely event of an accident. Depending on your record, some insurance companies might even decide not to renew your cover.
Other factors to consider include your age, driving experience, and gender (women are statistically less likely to cause road accidents). What’s more, if you have received more than one ticket in the past years for illegal actions like careless driving or speeding, you might receive a higher quote.
You’ll Pay More for Extra Cover, e.g. Roadside Assistance
Many comprehensive insurance plans allow policyholders to customize their coverage with add-ons such as Roadside Assistance, No Claim Bonus Protection, and Passenger Insurance.
Purchasing these add-ons can help you tailor your policy to where you drive, your experience, and your car model. For example, if you are a supercar driver in Dubai, specialized providers like InsuranceMarket.ae provide car insurance in UAE with ad hoc add-ons such as Zero Depreciation Cover and Engine Protection Cover.
While the extra cover might be just what you need for your peace of mind while driving, they can increase your premium. Keep an eye on how these purchases influence your insurance rates by reviewing your policy before renewing it and handpicking only the necessary extra benefits.
Know What Your Insurance Needs Are To Avoid Unnecessary Costs
However, in some circumstances, such as in the case of young drivers, comprehensive insurance policies that cover both you and other parties involved in an accident are more affordable than third-party-only coverage.
Your Car’s Value and Features Will Be Taken Into Consideration
Insurance plans are generally priced in accordance with the market value of the property requiring cover – in this case, your car. In turn, small hatchbacks, sedans, and city cars being smaller and less powerful, will be cheaper to insure.
Oppositely, supercar insurance can be as expensive as 1.25% to 3% of the vehicle’s agreed value. For example, insuring a $200,000 Audi R8 can cost you as much as $6,000 a year. As a general rule, the more your vehicle would cost to repair, the higher your insurance premium will be.
Pro Tip: investing in safety features can be a double-edged sword. Some, like blind-spot monitoring, have been seen to reduce lane-change crashes by 14-23% – a statistic that insurers might consider when calculating your premium. However, other advanced features can be expensive to repair if damaged, thus increasing your insurance rates.
Where And How Much You Drive Can Impact Insurance Rates
Insurance rates are affected by how likely you are to get involved in an accident or report damages to the vehicle. So, the more miles you cover per year, the more statistically likely you’ll be to experience a road crash – and the higher your insurance premium will be.
Similarly, you might pay more for insurance if you drive often within cities, which, on average, have higher rates of property damage, theft, and accidents.
Your Credit Score Might Play a Part in How Much You’ll Spend on Auto Insurance
Your credit score impacts all areas of your financial life – and your auto insurance rates are not an exception.
According to recent estimates, drivers with an excellent or good credit score will pay, respectively, an average of $1,556 and $1,771 for auto insurance, while those with a poor FICO score might face premiums as steep as $3000 a year!
Looking To Lower Your Premium? Increasing Your Deductible Might Work – But Only if You Can Afford It
Increasing your deductible amount – or the amount you commit to paying should the insurance have to make a pay-out – is a surefire way to lower your premium.
However, if you do get involved in an accident, you might find yourself in the position of having to cover thousands of dollars in damages! Make sure you can afford these out-of-pocket expenses before increasing your excess!