How Is Car Insurance Premium Calculated?

Owning a car is a dream for driving enthusiasts. Sitting behind the driving wheel gives them a sense of pride and satisfaction. They pick the colour, brand and features with great care while choosing a sleek machine. Besides offering contentment and the thrill of driving, car ownership involves certain responsibilities. These include regular cleaning, servicing and buying car insurance. The latter is crucial to enjoying risk-free driving and staying protected from unwanted costs.

Third-party car insurance is mandatory in Australia and safeguards the driver from financial losses in case of an accident or unforeseen event. The insurance company covers the repair cost if the vehicle has been damaged in an accident, natural disaster, vandalism, marine transit, fire, theft, etc. The insurance cost includes an annual premium that must be calculated at the time of purchase. It helps the driver ensure that the insurance cost fits into their budget and fulfils their needs. Let us understand how insurance companies calculate the premium.

How Is Car Insurance Premium Calculated?

Car owners can choose from a wide range of insurance providers in their state or territory. They must compare the cost and the type of cover provided by the insurance company before going ahead with the purchase. The premium amount differs for every car owner, and the insurer calculates it based on the factors listed below.

Car Insurance Policy Cover

Comprehensive insurance has the highest premium because it offers the maximum protection to the driver. The cover includes paying for the damage to the driver’s car and the other vehicle involved in the accident. It also offers coverage against damage caused by theft, storm, hail and vandalism. Alternately, if you purchase compulsory third-party insurance (CTP), the driver is not covered for injuries sustained during the accident because its premium is much lower. So, the level of coverage plays a significant role in calculating the premium.

Market Value of the Car

The insurance company decides the premium based on the current market value of the car. It is determined by considering its age, manufacturer, model, kilometres travelled, and condition. Cars that will incur a higher cost for repair will incur a higher premium. So, owners of premium cars pay more than those with affordable vehicles. Thus, buying a car that suits your lifestyle and household income is better than going after a status symbol that is hard to maintain. The vehicle should be easy to repair, and its spare parts must be easily available in the market.

Age and Gender of the Driver

Young drivers are more likely to be in an accident and fall into the high-risk category. So, older and seasoned drivers pay a lower premium in comparison to young drivers. Similarly, male drivers are considered to be risky when compared with female drivers. Thus, they pay more than their female counterparts for car insurance.

Driving History and Past Insurance Claims

A driver who has been involved in accidents in the past or has a history of claims is considered high-risk by insurers. Consequently, they pay a higher premium than those who have no such incidents to report in their driving records.

The average kilometres covered by the car in a year also increase the premium rate if the car has been used excessively. Thus, many car owners prefer using public transport to reduce their insurance bills.

The insurance premium will be on the higher side if you reside in an area that has a high crime rate. It increases the chances of theft and vandalism when parked in the street or a commercial precinct. You can keep your car in secure parking or a locked garage to reduce the risk and must inform the insurer about the same.

Some drivers are interested in including add-on benefits to their insurance cover, such as windscreen cover and roadside support. Keep in mind that every extra you get included in the policy increases the premium cost.

Keeping the factors used for the calculation of premium in mind will help you understand the annual insurance expense and ways of bringing it down. Car owners should compare insurance policy covers offered by different providers and their premium costs to choose the right one.