Most of us know that purchasing car insurance is mandatory when you own a car. However, its premium is often a pain area with most. This is often solicited by the fact that we do not know the nitty-gritty involved in its calculation and merely drool out the premium amount. But the truth is that the car insurance premium is a carefully thought out calculation based on a plethora of information fed into the computer. Here, we throw light on some factors affecting your car insurance premiums.
The city and area where you live have a deep impact on your car insurance premium. We all know most accidents occur close to home and thus the area assumes importance. A high traffic area would be more susceptible to an accident as compared to a low traffic area. With this assumption., most insurance providers divide the country in various ‘Insurance Zones’ based on the extent of a risk of accident in that area. Thus, a metro city would have a higher car insurance premium compared to a semi-urban locality while the rural area might have the least premium.
Demographic or personal factors
There are various personal factors which play a key role in arriving at the final insurance premium. Few of them are:
- Age and gender- Young men need to pay a higher premium than young women as statistics prove them getting more involved in accidents. But the situation reverses with age as older women are more involved in accidents than older men. However, the premium difference is small in both situations.
- Marital status – Married people are considered safer than singles as they are deemed as more responsible. With your driving history also taken into account; this factor can get your premium significantly down.
- Profession- Insurance companies also establish a correlation between a person’s profession and his level of risk of an accident. People who are more on the road like drivers, journalists, sales, etc. have a higher risk of accident and thus will attract higher premiums. Professionals like police officers, insurance underwriters, nuns, paramedics are considered more responsible drivers and thus need to pay low premiums.
- Credit score- Car insurance providers do not look at your credit score in the same way that a money lender or a mortgage lender sees. They use it to generate a credit-based insurance score which plays an important role in determining your insurance premium.
Your driving habits
You cannot erase your driving history when purchasing a new car. A person with a history of car accidents is likely to attract a higher car insurance premium than a person with a clean history. Another important consideration is the time you spend traveling. People who put more miles behind the wheels will attract a higher premium than the ones who use their car from moderate to sparse use.
The car for which you are purchasing the insurance also plays a significant role in deciding the premium amount as all cars are not deemed the same. Few key factors playing an active role here are:
- Safety rating- Each and every make of car is usually assigned a safety rating. A higher safety rating means the car is safer comparatively to drive and thus it will attract a lower premium.
- Type of engine- Vehicles running on diesel are more expensive and their IDV is also higher. Thus, diesel engines attract higher premiums than petrol-based cars.
- Vehicle size- Larger cars are deemed safer than smaller cars. Thus, between two vehicles with similar safety ratings; a large car would have a lower premium. However, cars with an engine larger than their relative body size would attract a higher premium. For instance, A sports car having a V8 engine would need a higher premium than a small car with a V4 engine.
- Age of the car- The repair cost of both old and new car is nearly the same. Still, the risk of being ‘totaled’ in an accident is higher for an old car. Old cars also need more repairs. Thus, their premium might be higher. In contrast, new cars have higher collision coverage rates which make the premium go higher.
- Installed safety and security features – Today, a car comes with a number of security features installed. Moreover, there are plenty of gadgets that you can install today to enhance the security of your car. Gear locks, handle locks, airbags, car alarms and various other anti-theft features, GPS tracking device, etc. are some gadgets which make your car safer and more secure against theft. These will inevitably take your premium go low.
The type of car insurance and coverage
The coverage and benefits you choose for your policy impact the premium amount. A comprehensive car policy with several add-ons and extra protection will be more expensive than a general policy. Customizing the policy to your particular needs may take the premium higher. You need to weigh your options here such that your premium amount is not getting out of hand.
Few factors like age, gender, etc. are beyond your control but you can get your premium down by working on your controllable factors like developing a clean driving history, installing safety equipment in your car, etc. This can get your premium to a happy amount that would no longer burn your pocket.