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How is my car insurance premium determined?

How is your car insurance premium determined? This question is often pondered by motorists who may see a low rate offered to a friend by one company, while the same company offers them a significantly higher rate. The information concerning your personal statistics, your vehicle, and the type of coverage you desire is used in calculating what your insurance premiums will be. If you choose a higher amount of coverage in your policy than the state required minimum, your insurance rates will be higher as well.  

An insurance provider will calculate your rates in accordance with the measurement of your risk factor. They do this to figure out how likely you are to be involved in an accident. The bigger the risk you are, the more money you'll have to pay in insurance to allot for the chance the company is taking buy working with you. Your risk factor is determined by comparing your characteristics against the national claims average for motorists who share similar features. These characteristics can include: 

  • Your age - Drivers under the age of twenty five are generally charged higher premiums than other motorists. Statistical data has shown that younger drivers are more likely to engage in risky behavior that may result in an accident.
  • Your gender - Of motorists who are shown to engage in risky behavior, males make up 62% of this demographic.
  • Your driving record - This is arguably the single most influential factor an insurance provider considers when determining your rates. Your driving history is used to gauge the types of driving patterns you employ.
  • Your zip code - Your zip code reveals relevant statistical data about your location, such as the crime rate your community. The crime rate includes instances of vehicle theft and vandalism.
  • Your credit rating - An insurance provider will consider your credit score when considering what premiums to charge you. Because you enter into a financial contract with an insurance company upon purchasing a policy, your credit history is an indicator as to how likely you are to honor your contract.
  • Your vehicle - There are many aspects that affect your rates that are tied to the type of car you would like to insure. For example, a higher end luxury car will automatically be more expensive to insure than a common mid-sized sedan. This is because the luxury car will be more expensive to repair in the event of an accident. The make, model, and even color of the vehicle are influential in determining your rates.
  • Your coverage - The type of policy you wish to purchase will also play a role in influencing your premiums. If you elect to purchase optional forms of coverage (i.e. comprehensive insurance) or to add certain riders to your policy, this will increase the amount of money you pay for the policy.

Although multiple factors will affect the price of your premiums, you should not worry too much. By obtaining an insurance quote online, you will be able to browse through a plethora of insurance companies and the various rates they will offer you on your desired policy. You can conduct as little or as much research as you wish, but in the end you can find the best deal for your needs. The potential savings you could accumulate can have a positive impact on your future finances.

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