Auto Insurance Premium
An auto insurance premium refers to the total cost of maintaining your auto insurance policy. The methods of determining an auto insurance premium vary by car insurance company, but typically every company considers the following factors:
- Risk factor measurement.
- Profit and loss measurement.
Risk Factor Measurement
Auto insurance companies measure risk factor by evaluating the general characteristics shared by high-risk drivers in the past.
For instance, if a company finds that a high percentage of last year’s claims were filed by young or inexperienced drivers, the company can then assume that young or inexperienced drivers are higher-risk drivers than their more experienced counterparts.
Common descriptions of high-risk drivers include the following:
- Male drivers. (Yes, gender can affect insurance premiums.)
- Single, unmarried drivers.
- Foreign drivers.
- Drivers with lapses in auto insurance coverage.
- Drivers convicted of multiple traffic violations, particularly dangerous violations such as DUI and DWI.
- Young or inexperienced drivers.
- Drivers in cities with a higher number of annual accidents.
- Drivers of high-risk vehicles, such as sport, luxury, foreign, or salvaged vehicles.
Persons considered high-risk drivers typically pay higher insurance premiums than low-risk drivers.
Profit and Loss Measurement
If a company experiences a loss in revenue due to lower premiums and higher payouts, it might decide to raise premiums across the board, or just for drivers considered high-risk. Conversely, if a company’s profit margin is particularly high, it might reward drivers with premium discounts for safe drivers.
Compare Car Insurance Rates
You can compare car insurance rates online, or by contacting the Insurance Department in your state.
Once you decide on an insurance company and policy, keep in mind that you can avoid monthly installment fees by paying your insurance premium in full. The savings might not be substantial, but paying in full will effectively lower the cost of your insurance policy premium. Be sure to inquire about payment options at the time of purchasing your insurance policy.