What makes up your car insurance premium

What makes up your car insurance premium?

When we buy something we like to know what we are paying for. If a large coffee is twice as expensive as a medium you want to know what you are getting for twice the money. The same occurs when you buy a car. You expect the price to reflect factors like the age, engine size, brand, and similar variables that increase or decrease the value of the vehicle.

When searching for the right car we don’t simply ask for the cheapest car in the lot. We know that will probably get us a terrible deal that might not start the next morning.

Strangely enough we don’t seem to act the same way with car insurance. We either ignore it, pay too much or too little without spending enough time on understanding and working with our car insurance.

Understanding what makes up our premium, the cost of our insurance will help us decide what we need and what we don’t in our car insurance. This will help you save money now on your premium and potentially save you from financial ruin if you get the right insurance coverage and protect your interests.

What makes up your car insurance premium?

A car insurance premium is the monthly or yearly monetary value an insurance company places on your risk as a client. The risk you pose as a client depends on various factors.

1) What you are insured for. Getting insurance for a BMW or a Skoda does not come at the same price. Similarly, owning a family car is considered safer than owning a sports car. Some insurance companies will even price premiums based on the color and how “hot” the car is.

2) Your personal risk rating. This refers to your driving history, your credit history, unpaid fines, age and gender. As is well known being a women will get you cheaper insurance. The older you are the cheaper your car insurance premium will be up to early 60’s when your premiums will slowly start to rise.

3) The pricing policy of your car insurance. Insurance companies don’t only rely on statistical rules, they also adapt to the rules of economy all business must follow. That is one of the reasons why it is such a good idea to shop around. If a company has had a bad year, and have lost a lot of money they might either increase their premiums to protect their end of year profit or lower premiums to attract more business.

4) What coverage you get on your car insurance. You choose to a great extent what deductibles or limits you place on your car insurance. If your liability insurance has a maximum of 25,000 dollars your premium will be low but you better start praying you don’t get into an accident where you are at fault, because 25,000 dollars is not likely to get you far.

Be smart! Think about what makes up your car insurance premium and find ways to improve it!

2) The risk factor