Even if you only pause for a second, many of us have thought about the age-old question: “If I get an old car, will it be more costly to insure?” This question is absurd. Actuaries, the mathematicians that determine your rate at a given moment, have many factors they can leverage to ensure every car insurance premium is as perfect as possible. The most important factor is not color. In the following paragraphs I will discuss some of the most significant factors that can impact the amount you pay to your car insurance company every month (or at whatever frequency you prefer).
Let’s begin with the vehicle. Insurance companies often use a symbol or another rating system to calculate how much it would cost for this vehicle to be insured (and replaced in the event that it is total lost). It is not surprising that parts for Hondas are cheaper and more easily found than for Ferraris. The price of the vehicle will be determined by the sum of all the parts. This determines how much insurance the vehicle requires.
If you take a moment and look at one part in detail, you will see another important rating factor. This is the engine block. The car will cost more if you have more power. A 1.8L I-4 is more expensive than a 4.45L V8. The smaller engines are also more fuel-efficient. This will allow you to save both on your premiums and on your fuel costs. There’s nothing wrong with that, I’m certain.
The policy’s drivers are the key rating factor. A 17-year-old with a brand new BMW 7 series will pay several orders of magnitude more than a 40-year old with a Toyota Corolla. You will be charged more for tickets, DUIs and suspensions. One example: You will get one point for all tickets. If you are at fault for an accident that results in more than $1000 damage, you’ll be assessed one point. Two points if someone is injured in an accident. You lose the Good Driver Discount discount, which can reduce your premium by as much as 20%, if you have more than two points on your license. Your record will be affected for three years starting from the date of your conviction, accident, or when your license status changed from suspended to valid.
Your annual mileage is a common driving habit that’s often overlooked. If you don’t give specifics, your premium may reflect someone who drives 10,000 miles per year. Talk to your broker about the distance you drive from work, the type of road trips that you take, how frequently you drive to the store, etc. Every mile counts.
Now that you know how your car insurance rate is calculated in a neatly compiled package, it’s time to get that coverage where you live. Your zip code is the last major factor in determining how much you’ll pay. If there are a few high-end vehicles on your street or you don’t see any accidents nearby, your rate will likely be higher than that of a neighboring zip.
This article is intended to increase awareness about why you pay what amount and to help you visualize the potential impact of a move, shiny new vehicle, speeding tickets, or other factors. I would recommend that you have open, honest and detailed conversations with your agent or broker about your car insurance.
