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How Is Car Insurance Calculated?

Neha Gadoo Neha Gadoo 18 October 2016

From where you live to your age, let’s take a look at the factors insurance companies consider to set a premium for your car insurance policy.

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We always wonder that why is insurance premium different for different people Or How is my insurance premium calculated?

Here’s a quick go-through to the main factors at will help you in determining the premium you’ll pay for your car insurance and the ways you can reduce the same.

1. The Car You Drive

The kind of vehicle you drive will majorly decide your premium that you will have to pay. There are however a few things that you need to take care of:

I. Value

The costlier your car, the more it will cost to replace the damaged part after an accident. The cost of repair of an expensive car is way higher, particularly if they have rare and expensive spare parts. However, keep in mind that just because your of car is cheaper, the premium will be cheap too. Insurance isn’t just to get a cover for a damage to your own vehicle, it gives you coverage towards those accidents that you might have caused.

II. Power

The more powerful and faster your car, it is likely to cause an impactful damage to other cars on the road. So usually, the more powerful your engine, the higher the premium.

III. Modification

If you’ve modified your car to make it more powerful or look different, you need to inform your insurer. The insurance premium you pay will be higher. However, if you don’t inform them, they can cancel your policy or even reject your claim in future. If you own a car, that looks desirable to the eyes, your insurance companies may consider that your vehicle has a risk of getting stolen. If you own a high-end-modified car, install an anti-theft device in your car.

2. Where You Live

Your postal code plays an important role in deciding your premium. If you live in an urban area where the risk of getting involved in an accident is high, you will have to pay more. The same applies if you live in a high-crime rate area. This may even vary between the postal codes of areas nearby. A car registration few kilometers away can have considerably high premium because of the closer proximity to the dangerous areas.

3. How You Use Your Car

If you use your car for daily commuting, you are likely going to pay a higher premium than people whose car is mostly lying in their garage. Your annual mileage is considered, the more you drive the more you are likely to get involved in a mishap. Hence, the premium.

4. Your Driving History and No-Claims Bonus

If you haven’t made any claims in your previous policy year. You can avail a bonus for every claim-free year. These details will be asked while you renew your car insurance. Most insurance companies give discount on premium up to 50% if you haven’t made any claim in last 5 years.

5. Voluntary Deduction

The more you agree to share, the less your insurance premium is. If you decide a percentage of voluntary deduction at the time of claim, the premium will be reduced automatically. On the contrary, if you go for no voluntary deductions, your insurance company will have to bear all the cost in the event of a claim. Hence, you’ll face a higher premium.

6. The Type of Cover You Buy

There are three levels of car insurance cover:

  • Comprehensive
  • Third-Party Only
  • Third-Party, Fire And Theft

The "third-party only" cover offers you the basic level of protection, whereas comprehensive coverage adds extra level of protection. If you think that higher level of cover will cost you more premium, that’s not always true. The price you pay for every cover is worth checking, as some drivers feel they can get more out of less.

An online broking firm acts as a car insurance calculator. It is easy to understand what is covered in your policy. It is easy to compare features and pick the right policy. And it is even easier to buy a policy online.

Neha Gadoo
Written by Neha Gadoo
Daring and Bold, Neha loves philosophy, trekking and walking bare feet in the rain. Loves talking and can stare out of a car window for hours continuously.