Car insurance is a necessary part of driving in Canada, the United States, and much of the western world. It’s in place to protect the driver, passengers, and all other vehicles and pedestrians on public roads. Essentially, it is in place to protect individuals involved in accidents, theft & damages.
Its purpose we understand, but one of the biggest questions we often have is, “how does car insurance work, and how are premiums calculated?” To answer this, we have broken down some of the key aspects that influence insurance rates, and how these factors can increase and decrease an insurance premium accordingly.
Value of the Car: This is one of the first things any insurance company considers when calculating insurance premiums. If your car is brand new, expensive, and of high value you will almost always pay more in insurance than an older, less valuable car.
Horsepower: This is another one of the main factors in calculating insurance rates. The higher the horsepower, the higher the cost of insurance. This is because insurance companies feel that the more power a car has, will result in higher chances of speeding, and erratic driving.
Safety: The safety features included inside of your vehicle also have an effect on your insurance premiums. If you drive a car with a bad safety rating, with limited air bags, your insurance rates will most likely be higher than if you had a vehicle of superior features. Age of the vehicle also plays a factor into this safety calculation.
Security: Finally, a vehicle’s security features will also dictate insurance rates. The more security options and features your vehicle has, especially aftermarket features, your insurance rate will become further discounted. Additional alarm systems on top of the manufacturer alarm and vehicle immobilization system, will almost always help reduce insurance costs.
Gender: The car insurance industry takes statistical information into account, and analyzes trends among male and female driving behaviour. As a result of statistical analysis, males generally pay more in insurance than women, as they are seen as the higher risk gender.
Age: Not only is gender considered, but age is also a contributing factor to auto insurance premiums. Generally, young drivers will pay some of the highest insurance rates, and will continue to pay a higher premium up until the age of 25. 25-65 year olds typically pay the average, lower amount while the 65+ demographic is often rewarded with good driving discounts and sometimes pay a lot less than all other age groups.
Years of Experience: The amount of driving experience is also a contributing factor to insurance rates. Many provinces in Canada, including Alberta, use graduated licensing systems which introduce individuals into driving in a planned manor. Each level progressed through the system will usually result in an insurance discount, and continuous years holding a clean driving record free of tickets often results in a lower calculated premium.
Location: The location where the vehicle is insured also plays a factor in the insurance rate calculation. Those who live in and around large cities will pay more in insurance than somebody who lives in a rural setting. Rates increase depending on proximity to high traffic areas, and accident prone roads.
Overall, insurance rates are calculated through a unique algorithm that takes many factors into consideration. Rates are also affected by the amount of deductible you set, and the level of insurance features you put on your policy. At the end of the day, it’s important to make sure you have a level of coverage that best suits your needs while not putting a hole in your wallet! We at ARC insurance are drivers just like you, and we know how frustrating getting insurance can be. Contact us today for a free quote, and to receive more information on your auto insurance options!