How Vehicle Insurance Rates Are Calculated

Owning a vehicle involves a substantial investment of capital. Your vehicle is always at risk of getting damaged because of the colossal traffic that it is exposed to regularly.

Repairing automobiles, especially the imported ones, can require a lot of money and might mess up your budget plan. Hence, getting your vehicle insured is something you should seriously consider, to be on the safe side of the road.

Some states have mandated possession of a vehicle insurance policy and not complying to the rules might end you up with heavy tickets.

Types of Auto Insurance Coverage Options

Vehicle insurance companies offer several types of coverage to cover for any damage caused to your vehicle, to you, or the third-party property or member.

The cheapest one would be to go for third-party liability coverage. Opting for this coverage will only cover the damages incurred to the third-party property or the third-party members. It will not provide any coverage to the damages caused to your vehicle or you.

A better option would be to go for comprehensive coverage which includes third-party liability and also covers any damage caused to you or to your vehicle too. It also covers for any physical injuries caused to you or the third-party member and also provides compensation in case of fatalities or death. But all of these come with an additional payment, increasing the policy cost.

As you would expect, a lot of factors that influence the insurance cost of your vehicle. Let us understand what these factors are to try to reduce the net car insurance policy cost.

Key Factors that Determine the Cost of Insurance Premiums

In general, three major attributes are responsible for influencing the cost of your vehicle insurance policy substantially:

• Make of your vehicle
• The model number of your vehicle
• Age of your vehicle

Apart from these three major deciding factors, there are a few more things that are taken into consideration by the insurance company while deciding the policy cost for your vehicle. These other factors include things like the track record of your driving, where you live and who would be using your vehicle mostly.

Let us explore these factors in more detail and find out ways to decrease the insurance policy cost of your vehicle.

1. Make and model of your vehicle

As already mentioned, the make and model of your vehicle plays a major role in determining the cost of your vehicle insurance policy.

Your vehicle comes with a vehicle identification number or VIN, in short, which provides insurers with the information about the make and model of your vehicle. Hence, while getting an insurance quote, do mention the correct VIN of your vehicle.

Policy cost for an expensive make and model of a vehicle will be comparatively higher.

2. Add-on covers

There are a lot of value-added covers that insurance companies offer. Add-ons are beneficial but come with an additional vehicle insurance policy cost.

For example, there are add-ons which provide zero depreciation. This is something you should be considering for the long run since the value of vehicles and their parts fall over time. Hence, read about the add-ons carefully to make an informed decision.

Select the add-ons in your car insurance policy which you think would be beneficial for you and is worth paying the additional cost.

3. Loyalty discounts

Generally, vehicle insurance companies provide rebates to their existing customers. Hence, renewing your vehicle insurance policy with the same carrier might offer you some discounts on the net policy cost.

4. History of insurance claims

The record of insurance claims in the past for your vehicle also influences the policy cost.

Insurance companies offer a no claim bonus for those who have not claimed for insurance in a policy year. This bonus could be used to reduce the cost of premiums for any subsequent renewal of vehicle insurance policy.

5. Driver’s track record

A good driving record can help keep the car insurance policy cost to a minimum. The cost of premiums generally increases in case you have a record of suspension of license.

Convictions due to traffic rule violence or other related felonies can significantly increase your insurance policy cost.

6. Population density of the area

Usually, areas with a higher population density have increased chances of thievery and accidents due to increased traffic on roads.

If you reside in an area with a higher population density, the cost of insurance policy may be comparatively higher.