How do the price of my car insurance policy is fixed?

The premium of your car insurance policy is determined by many factors and it is estimated that an average American spends about $950 to $1000 in a year. The factors that contribute to your auto insurance premium are

1. Driving record

The better your driving record, the lower will be your car insurance premium. Accidents and serious traffic violations will add up to your premium while a clean driving record will help to reduce it. Being non insured for quite a long period will boost your car insurance premium.

2. Low mileage discounts

It is common sense to note that the longer you drive your car, the greater the chances for you to be involved in accidents. Hence, if you drive less than the prescribed miles in a year, say less than 10,000 miles in one year you are eligible to get a discount in premium. Carpoolers (policy holders who carpool) are credited with a discount in premium.

3. Place of your residence

Insurance companies analyze and fix the premium depending on the threats emanating from the locality like the number of accidents, frequency of car thefts and the resultant lawsuits, cost involved in medical treatment and repairing your car. So, where you live do matter in respect of deciding your auto insurance premium.

4. Age of the insured

The younger you are, the more you are likely to commit mistakes and accidents. Seasoned drivers are less likely to have accidents than teen aged drivers. Insurance companies charge more premium for teen aged drivers or people with less than 25 years of age.

5. Type of car

Not all cars are similar in nature and they differ in design, ease of use, nature of build, likelihood of theft, price of the car, cost involved in repair and the overall safety record of your car. Based on these criteria, the auto insurance premium of your car is calculated.

6. Quantum of insurance coverage

The higher the quantum of your car being insured, the more you are likely to pay as a premium but different insurance companies offer discounts for higher amount of coverage.

7. Credit scores

It is calculated based on individuals credit history. These credit scores help in securing a loan, getting a telephone connection, finding a place to live and buying insurance. Depending on the person’s credit history, insurers generate a numerical ranking and it is rightly termed as “insurance score”. These insurance scores help in differentiating between lower and higher insurance risks and accordingly that extra risk is added to the premium calculated. It is an established fact that people with poor insurance scores are more likely to file a claim. So, a good insurance score will help to cut your car insurance premium.

What shall I do to safeguard my credit / insurance scores?

  • Pay your outstanding bills on time
  • Never secure more credit than you need
  • Let the balance in your credit card be as low as possible, i.e. try to settle the bills in full every month.
  • Watch your credit card and see that errors, if any, are corrected immediately so that your credit scores do not suffer.

The FCRA – Fair Credit Reporting Act comes in handy in knowing your credit scores and mandates all the consumer reporting companies such as Experian, Equifax, TransUnion etc. in your state to let you know about your credit score once in a year on request, free of cost.