How Do Insurers Calculate Car Insurance Rates?
You just purchased a new car, and now you’re in the market for budget car insurance. Once you give an insurance company with some basic information, including the car model, your age, your address, etc., they supply you a monthly premium quote. But how exactly do they calculate that number?
Continue reading to understand how insurers determine your rate and how you can save premium dollars by shopping your coverage.
Different insurers, different quotes
Many drivers wrongly think that premium rates are established by the state. While auto insurers must meet certain laws when calculating rates, the rates themselves are not set by law.
When you request a quote, the insurer reviews several factors as they determine your rate. However, since each company utilizes their own unique calculation method, you’re likely to receive widely varying rates from different insurance providers.
Running the numbers
Depending on your state’s insurance laws, insurers normally calculate your premium rate based on some combination of the following factors:
* The year, model, body type, engine size and safety features of your vehicle * Your age, gender and marital status * Your personal credit history * Your driving record * Expected usage of the car (such as if you are using the car for commuting to and from work, pleasure or as a collectible.) * Home ownership status and occupation * Number of drivers that will be using the car and their ages * Number of vehicles you own * Requested coverage limits * Where you reside * Assumed weekly, monthly or annual mileage
Generally, your insurance agent will enter all of this information into a computerized system. The system automatically places you into a price group based on your personal information. The insurance company then subtracts any discounts for which you qualify from your group’s rate and you’re left with the resulting quote.
Where your premium dollars go
If you elect to purchase a policy with the company, you’ll begin paying a monthly premium. But what exactly does your monthly premium cover? Here’s a typical insurance premium breakdown:
* Almost 70% of your premium goes towards losses and loss expenses * About 26 percent of your premium goes toward marketing, commissions and other administrative costs * About 4 percent of your premium contributes to the insurance company’s profits
You should shop around
Each company has its own set of claim payments and expenses, and they set rates for each “price group” accordingly. That’s why you’ll likely receive varying quotes from each insurance company. This is why it’s so important to take the time to shop around and find the best rate.
Plus, while insurers are prohibited by law to calculate rates based on race or religion, they can consider your age, gender and marital status. However, each company places emphasis on different factors. For example, while one company may place more emphasis on a driver’s gender, another company may view their driving record are more important.
This is yet another reason to request plenty of quotes before you settle on an insurance company. In addition to the rate, you should also consider which company offers the type of coverage you desire. Do your homework and find the best fit for your unique auto insurance needs.
If you’re looking for instant car insurance quotes or just a quick auto insurance quote comparison stop by 123insurancequotes.net today for more information. Save money in 60 seconds or less with our easy quoting software.
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