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Risk Classification in Car Insurance

Risk classification in car insurance is, in plain terms, a way for insurers to figure out how much to charge their customers for insurance. Risk classification takes historical research about claims and accident data gathered through the years to assemble an estimate of the level of risk an insurer is taking on by insuring a particular customer with specific characteristics. If you have ever wondered why you are labeled a preferred driver or a high risk driver, you can read up on risk classification and find out more. In reality, the whole concept is fairly simple and straightforward, and all based on statistical probability.

There are three main categories of concern for insurers when they gather historical data on car insurance risk. These three broad categories are the driver, the vehicle, and the coverage. Each of the three plays an important part in determining eligibility for certain programs and cost of policies.

Driver Characteristics Affect Policy Pricing

As an insured driver or one seeking insurance protection, you bring with you a specific set of characteristics that will greatly affect your eligibility for coverage and the prices you pay for auto insurance. Providers are not concerned about every little detail about you, but they are interested in knowing certain specific sets of data to help them in setting rates for insurance policies. Your age is a very important risk category, as insurers keep track of accident and claim statistics broken down by age through the years. As you get older, the perceived risk your insurer takes on by insuring you will decline as accident statistics do the same. This trend is only reversed when you get beyond retirement age. An example of age related statistics is that drivers who reach age 25 often save money on their policies over the prices they paid between the ages of 21 and 24. Drivers age 21 to 24 represent a common actuarial grouping as far as risk classification is concerned.

Your gender is another statistic in play, although it is not as significant as age. Men are more likely to get into accidents than women, and they tend to display more aggressive driving habits than their female counterparts, so men do pay a bit more than females with all other risk factors being equal in their insurance profiles. Your marital status is also included, with married drivers perceived as a somewhat lower risk to insure due to statistics pointing to historically lower claims rates.

It is obvious enough that your driving record is going to be a factor. The tendency you have displayed toward safety or the lack thereof will have a definite effect on the price you pay for auto insurance. Claims and citations do not stay on your record forever, so you do have the chance to redeem yourself and start getting into more affordable policies if you have had accidents or other problems in your past. Where you live also gets factored in, simply because some places are more likely than others to get your car stolen or to put you in a high traffic situation which is more likely to lead to an accident. Large cities tend to be more expensive for car insurance, while rural and suburban areas are usually more affordable.

Vehicle Choice Affects Premiums

Just as the factors a driver brings to the policy influence its cost, so too does the characteristics of the vehicle being insured. There are a number of vehicle related factors insurers take into account when setting car insurance rates. The age of the vehicle is one, the manufacturer another. The model of the vehicle is a third category taken into account. All three are considered in relation to historical data about how certain vehicles have fared in terms of claims. Those which have had lower accident or theft rates, for example, or which yield lower average claim costs, will cost less to insure than other cars.

The value of the vehicle being insured is also a factor addressed by insurers. This is because comprehensive and collision insurance protection both come with limits of coverage equal to the value of the vehicle. The more money it is worth, the more it would cost the insurer in a total loss. Pricier vehicles cost more to insure. Again, this concept is simply following common sense economic principles. But the covered car and the driver are not the only two areas of classification the insurer will look into when putting together auto insurance premium rates. There is another area of classification that directly ties into the amount of money insurers need to charge to recover their projected costs of a policy.

Coverage Choices Drive Insurance Costs

The types of coverage drivers choose to include in their policies make up the third broad risk classification category for auto insurance providers. There are several different basic coverage categories common to all insurers. As a customer there are certain areas you must address in your policy, set into place by the government of the state you live in. liability insurance fits into this category. Certain states also mandate other areas of coverage, such as uninsured and underinsured motorist protection or personal injury protection (PIP) also known as no fault.

In states where these are not required, a driver can still get personal medical payments coverage as well as uninsured and underinsured motorist protection. No state government requires the inclusion of collision and comprehensive auto insurance, but if you are a lessee or if you are financing a vehicle through a bank or other lending institution, you will need to have these on your policy as long as you still owe on your financial obligation. Once you own a car or truck outright you can choose to keep collision and comprehensive, or you can drop them from your coverage.

The type or types of coverage the driver adds to a policy set the level of risk the insurer has to take on to insure the individual and the vehicle being covered. For this reason, rates are extremely dependent on the coverage a driver takes on. This includes the types and the levels of coverage elected, as well as choices regarding deductibles. Drivers who choose higher deductibles are in essence partially self insuring against risk, which in turn reduces the amount of risk being handled by the provider. The more the driver self insures with high deductibles, the more their rates will go down.

Aside from these three main categories, there are certain other factors that can raise or lower auto insurance premiums. For example, the driver may have to pay a surcharge based on business use for a covered vehicle. This surcharge will vary based on the vehicle itself and its intended use. Discounts can be had for safety and security features like anti theft devices, alarms, airbags, passive restraint systems, and child safety locks. Other possible discounts include good student, accident free and low miles discounts.

Exploring discount opportunities is one way to save money on auto premiums. Risk classification locks you in to a rate to a certain extent, but there are certainly ways you can work to buy some financial breathing room.


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