Calculating a Car Insurance Premium

Monday, May 28, 2012

Whether you’re buying your car insurance online or through a licensed insurance professional, you know that getting a quote requires you to answer a variety of questions.  That’s because a lot of factors go into the calculation of your insurance premium.  While every insurance company uses a different formula for coming to that final number, here are some of the considerations included in the mix.

The type of coverage you desire.  A certain amount of liability insurance is mandatory, specified by the province in which you live, to cover the costs of damage you may cause to another person and/or his or her property in the event of an accident.  The amount mandated by your province is a bare minimum, however; you may purchase additional liability to strengthen your coverage.  Collision insurance, which covers damage to your vehicle in the event of an accident, and comprehensive insurance, which protects your vehicle from damage caused by fire, theft and vandalism, is optional.

The characteristics of your vehicle.  First the insurance company determines the type of car you are wishing to insure.  They look at several factors related to your vehicle such as, safety ratings, theft occurrences and the value of your vehicle.  Additionally, the insurance company considers any value-added features that might make your car a high-theft vehicle.

Your age.  Younger drivers who have not yet established excellent driving records may pay more for insurance than older drivers with clear records, even if they haven’t had an accident.  That’s because the incidence of car accidents is higher among drivers under age 25. According to the Insurance Bureau of Canada, the fatality rate among drivers who are 16 to 19 years old is four times that of 25- to 34-year-old drivers and nine times that of 45- to 55-year-old drivers.  Although drivers 16 to 24 represent only 9% of the driving public, they account for 25% of traffic fatalities and serious injuries.

Your driving record.  When drivers are charged with driving violations these violations may remain on their records for up to three years.  Also if enough demerits are accumulated, a driver can lose his or her license. Insurance companies look at this information, too, when calculating car insurance premiums.  Additionally, most insurance companies use the star rating system, which assigns one star for each year of safe (accident-free) driving.  Most use a six-star system but some go as high as 10 stars.  Drivers with higher star ratings are likely to get more favorable rates than those with lower ratings.  Accidents can affect your driving record for as long as 10 years.

Location of residence.  Drivers who live in low-crime areas tend to pay lower premiums than those who live in high-crime areas.  The risk of theft and vandalism is clearly higher for the latter.

Once your base premium has been determined, your insurance company may apply discounts.  Depending on the company, these price breaks might include discounts for having security features installed, insuring multiple vehicles or bundling insurance policies (using the same company for homeowner’s or renter’s insurance in addition to car insurance).