Risk Factors in Car Insurance Premium Calculations

Risk Factors in Car Insurance Premium Calculations

Oct 3rd, 2013

Risk Factors in Car Insurance Premium Calculations

This feature was Contributed by Jamie Englert from Carfinance247.co.uk

When determining the amount of your auto insurance premiums, insurance companies normally use what is commonly referred to as risk factors. In insurance terms, risk factors simply refer to the likelihoods of the driver being involved in an accident. In addition to establishing the number of times you are likely to make claims, risk factors are also used to establish the amount the insurance carrier is likely to pay in claims.

What Are the Key Risk Factors in Car Insurance Calculations?

Whereas there are a couple of risk factors that can easily be eliminated or negotiated when computing your insurance premiums, for example, the kind of car that you drive and the mileage covered in any given year, there are some that cannot be done away with. For instance, age is one of the elements that insurance companies have to use to set premium rates.

The primary reason for this is because the insurer cannot determine your level of carelessness or caution by simply looking at the application form. The only exception is if you have made several claims in the past and have managed to accumulate points on your driver’s license. In that case, the insurer may rely on the statistical data from its client database to determine the kind of risk you are likely to pose.

Age is one of the mandatory risk factors that insurance companies use because statistics from across the country have proved that young drivers are two times as likely to be involved in collision accidents and make claims than older drivers. It is for this reason that the insurance premiums for drivers between 17 and 25 years old is usually high.

Ensuring Age Isn’t a Major Factor in Car Insurance Calculations

Whereas you cannot alter your age, there are a few things that you can do in order to ensure that your auto insurance premiums are kept low. For example, your zip code plays a part in premium calculation. If you reside and work in an area where collision accidents or auto theft is quite common, understand that you will pay more in insurance premiums.

According to motor experts, you can also ensure that your auto insurance premiums are kept low by covering less miles in any given year. It is common knowledge that the more time you spend on the road, the more likely you are to be involved in a road accident. For example, if you are a salesman, chances are that you are constantly on the road looking for prospective clients. Consequently, you are more likely to spend more on car insurance premiums than a factory supervisor who spends time in the office.

Is Gender a Risk Factor In Auto Insurance Premiums Calculations?

The good news is that you no longer have to worry about your gender, since gender is no longer used as a risk factor in the insurance premium calculation. Initially, women were the biggest beneficiaries when it came to cheap auto insurance since insurance carriers consider women to be less risky drivers than men. However, legal regulations were subsequently passed to ban the favouring of one gender over the other in premium calculations.

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Category: Consequences, Hazard, Probabilities

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