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How Auto Insurance Premiums are Calculated

Auto insurance premiums are not just some arbitrary numbers which auto insurance companies make up. They are, in fact, well-thought-out calculations that take some time and many considerations to come up with. Auto insurance companies rely on each client's unique personal information and the information on the type of vehicle they're insuring to make educated guessed on their likelihood of making claims. The riskier you are, the higher your premiums will be. The following are the factors that auto insurance companies consider when deciding how much each client pays in premiums:


1. Location 

Your auto insurance company will first ask about where you live or where you plan to be driving your vehicle most of the time. If you live in a town or any other densely populated area where things like congestion and accidents are more likely to happen, you will likely pay higher premiums. The ZIP code also indicates some of the dangers that your vehicle may be exposed to, such as high rates of theft, the possibility of hail or floods, etc. 


2. Type of car 

First of all, the make and model of the vehicle determines how much it's worth. The more expensive the vehicle is, the higher the premiums. There are other factors that come into play based on the type of vehicle. For instance, some classy vehicles like the Mercedes S-class have features that greatly reduce the likelihood of accidents. Another thing affected by the type of vehicle is the likelihood of theft. Some vehicles are loved by thieves and you will probably have to pay higher premiums for such vehicles. 


3. Age 

The age of the driver also matters when calculating Insurance premiums. Insurance companies usually charge higher premiums for younger drivers since they don't have a long driving history to show how good or bad they are and also because according to statistics, younger drivers are the most likely to be involved in a crash due to their inexperience. 

At the other end of the spectrum, drivers over 70 years old may be charged higher premiums than younger drivers as they are at a higher risk of getting into accidents. 


4. Gender 

According to statistics, male drivers are more likely to be involved in an accident as they drive more miles and are likely to be engaged in risky driving behavior. As such, male drivers usually get higher premiums. 


5. Driving record 

Insurance companies really consider your driving record since it's the best thing that can show what kind of driver you are. The driving record shows any accidents you've ever been involved in, including the details. Looking at a client's driving record, the insurance company will know how risky they are and adjust premiums accordingly. 


6. Safety features in a vehicle 

Some cars come with safety features that can prevent or significantly reduce the likelihood of accidents. Some of these features include extra object detection technology, proximity sensors, and extra airbags. The more the safety features, the lower the premiums. 


7. Credit score 

Insurance companies check a driver's credit score when calculating premiums. The higher the credit score, the lower the premiums.