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News Room

How Is Your Car Insurance Premium Calculated?

Jason Snyman
2019-11-19
Some people may pay higher car insurance rates than others. Why? Let's take a look at how your premiums are calculated, and if there's anything you can do to lower them.

The cost of your car insurance premium is determined by a complex system, measuring up circumstances and probabilities. When combined, these factors determine how much of a risk you and your vehicle are to insure.

The most obvious of these factors includes the type of cover you would like to get. Entry-level third-party insurance is the most affordable, but the cover you receive is limited. Third-party, fire and theft is the most popular option, and because it covers a larger array of risks, it costs a little more. And then, of course, comprehensive cover costs the most, because it protects you and your vehicle from pretty much any risk. 

Other factors that influence the cost of your premium includes your gender, your marital status, whether or not you have children, where you live, where you work and so on and so forth. You can see different car insurance quotes for yourself by comparing deals online.

So, what do these factors have to do with insurance? Let's take a detailed look.

The Personal Factor - Gender, Age and Marital Status

Certain insurance companies, such as First for Women, offer lower insurance rates for female motorists. 

This is because, statistically, men (especially young men) are involved in far more accidents than women. As men get older, however, this begins to balance out, as they become more experienced, more patient, less reckless and more responsible in their driving habits. Older men, then, presenting less of a risk to insure, enjoy lower premiums than younger men.

The same can be said of marital status, and whether or not you have any dependents. Statistically, motorists that are married, or who have children, are involved in far fewer accidents, and enjoy lower premiums. This is largely due to the fact that we all drive a lot slower, a lot more responsibly, and pay far more attention to what we're doing when we have our loved ones in the vehicle with us, or waiting for us at home.

Location, Location, Location

Insurers want to know where you live and where you work, and these details make a big difference to how much you'll be paying on your monthly premiums.

First off, we need to look at security. Where do you keep your car at home? Is it locked up in a garage, guarded by a locked security gate, or do you park your car out in the street? Likewise, where do you keep your car at work? Do you have adequate and safe parking, or does your car sit out in the road for long stretches of time?

Second, we need to look at the neighbourhood. Certain neighbourhoods have far higher crime rates than others, increasing the likelihood of hijackings, vehicle burglaries, smash and grabs, etc.

Third, what is the distance of your daily commute? Densely populated areas with high levels of traffic or activity lead to a higher risk of accidents, thefts, collisions and injury. So, not only does the area through which you drive every day play a role, but the distance which you drive - increasing the likelihood of something unfortunate occurring - also factors into the calculations. 

The safety of the vehicle in the areas in which you leave it unattended, combined with the level of risk faced on your commute, are the most important factors here. 

Professional Risk Factor

So, not only do insurance companies want to know where you leave the car and where you drive the car, but they also want to know how often the car is used per day, and for what reason. 

This is because the frequency of use increases the potential of risk. The more time you spend on the road, the higher the chances of you being involved in an accident, or falling victim to crime. 

A person that drives to their office in the morning and drives home in the afternoon, for instance, will enjoy lower insurance premiums than a person who spends most of the day driving around, such as sales reps, journalists, delivery agents and so on.  

Additionally, certain professions may also lower your risk rating. For instance, police officers, paramedics and even insurance underwriters themselves may enjoy lower premiums, due to the fact that people in these professions generally display a heightened sense of caution, compared to the average motorist.  

Insurance Premiums Depending On Your Vehicle

Many people don't know that both you - the motorist and owner of the vehicle - and your vehicle itself, are both insured together. 

Because of this, if somebody else were to drive your vehicle, for instance, and cause an accident, you will be the person held responsible.

But, let's take a closer look at the vehicle itself, and how this could factor into your insurance rates. 

  • Vehicles that are worth more, as well as those that are higher targets for theft, are going to increase your insurance premiums simply because they are a higher risk;
  • Older cars aren’t always cheaper to repair than new ones. The availability of car parts might be a problem. If your car is a rare model, or the manufacturer has limited representation in the country, or a particular level of skill is required to fix it, then you can expect to pay higher premiums. Uncommon = Expensive;
  • A high-performance vehicle inherently carries more risk. It’s driven faster, it’s driven harder, and it’s built for power. Mathematically, it only increases the chance of an accident occurring;
  • Enhancements make your vehicle attractive. Not just to you, but to thieves too. A state-of-the-art sound system, fancy rims, etc. all factor into the level of risk;
  • When we look at safety features, most cars from the last two decades have been fitted with anti-lock brakes. Newer systems are even better, with parking assistance, driving assistance, drowsiness and lane departure alerts, and so on. Having these systems in place lowers the risk of an accident. Older cars just don’t have them. On the flipside, once the car is out of warranty, those same systems cost an arm and a leg to repair. On lower-value cars, once the airbag has been deployed and needs replacing, an insurer might consider writing the car off. Even if the actual damage was minor. This is because with such old cars, the cost of replacing the airbag outweighs the value of the entire car.

So, we can say that the make, model and age of your vehicle are the main factors considered here. Contrary to popular belief, the colour of your vehicle rarely matters, and only when concerned with the type and cost of paint used.

Historical Data And Credit Score

How many accidents has this particular model of vehicle been involved in? An insurer will dig deep into the history of that car and model. The VW Beetle, for example, is prone to catching fire. Certain SUV’s have a history of rolling. Uno’s crumple like a soda can in a collision. The Datsun Go, and other zero-star rated vehicles, are generally considered a death trap due to their lack of safety features. 

And, of course, certain models such as the VW Polo, are favoured by criminals.

Your own history with accidents, collsions, thefts and claims submitted also factor largely into the calculations. 

Your credit score, likewise, is commonly assessed by insurance companies in determining your capability of making reliable payments. 

The lower your credit score, the higher your premiums will be. Research shows that credit scores can actually accurately predict accidental potential. Statistical data shows that those with a higher credit score incurred fewer accidents, costing their insurance companies far less than clients with low credit scores.

Things Your Insurer Needs To Know

Certain major life events have an impact on your monthly premiums. It’s important to notify your insurer of these events as soon as they happen, as they could also affect your claims. 

If you’ve just gotten married, your monthly premiums might go down. If you’ve just gotten a new job, the insurer will need to be updated. They need to know where your car is parked for most of the day. Likewise, if you’ve just moved to a new address, keeping the insurer in the loop needs to be at the top of your to-do list. If you haven’t updated them and something happens to your car at the new address, your claim may be rejected. 

These small details will help you get the most of your insurance, but in the end, the best way to understand everything about your cover is to read your policy documents. As soon as you get them, speak to your broker or insurer if you’re uncertain about anything.   

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