Insurance is all about risk. Every time you start up your car, you are taking a sort of gamble. Will you get into a fender bender on your way to work? Or on your way to school, or the mall? Will you suffer a loss and have to file a claim?
An insurance company must decide exactly how large of a risk you represent to them – and how much money they stand to lose by “wagering” on you. The price of your automobile insurance policy is a representation of the chance they are taking. The higher the probability that you will file a claim, the higher your premium will be.
In order to determine this probability, insurance companies have come up with statistical models to determine your risk factor. These models evaluate a number of factors, including:
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Your Driving Record
This consists of how many accidents you have been involved in, how recent the accidents were, and if you have any serious traffic violations on your record. In short, the more accidents you’ve been in and the more traffic tickets you have under your belt, the more you’re going to pay in car insurance.
Number Of Miles You Drive Each Year
The principle here is that the less you drive, the less chance you have of getting into a collision. Again, since insurance all about risk, the less you drive annually, the less risk you represent to the insurance company. A motorist who drives over twenty thousand miles annually will potentially have a higher premium than the motorist who drives less than ten thousand miles a year.
The Type Of Car You Drive
Expensive car models cost more to insure simply because they cost more to fix and replace. Besides the sticker price of an auto, insurers also look at how often a particular model is stolen. Cars that are statistically more likely to be stolen will cost more to insure. Various features that a car possesses, such anti-theft and safety devices, can also impact the price of the auto insurance premium.
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Where You Drive
Your zip code also comes into play for your auto insurance premium. Areas that have a higher rate of accidents, stolen vehicles, and lawsuits will see higher insurance premiums. Basically, it will cost more to insure your car in a densely populated urban area than a lightly populated rural area.
Your Age & Sex
Insurance stats demonstrate that certain demographics are more likely to file a claim. Older drivers are proven to be more cautious, and thus will see lower rates than drivers who are under 25. Female drivers are also less likely to file a claim than male drivers. A female driver over 40 years old will see lower premiums than a male driver under 20 (if they drive similar cars).
Your Credit Rating
Insurers have determined that people with poor credit file more claims than people with good credit. Insurance companies have decided your credit score can help predict the level of risk you represent. The higher your credit score, the less you could fork over in car insurance.
Your Amount Of Coverage
Of all the factors listed, this one is perhaps the easiest to control when you negotiate your auto insurance policy. The equation here is simple – the less coverage you have, the less you pay for a premium.
However, you should be cautious in simply selecting less coverage in order to save a lot of money. You need to get the right amount to properly cover yourself. You don’t want to be underinsured, get into an accident, and discover that your insurance company won’t cover much of the expenses. That could leave you with some very hefty bills to pay.
Another approach to take is to carry a higher deductible. Here you are assuming more risk up front, but will still have proper coverage in case you suffer a loss. A difference of a few hundred dollars may seem like a lot, but it pales in comparison to the cost of being underinsured (potentially thousands of dollars).
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