How Car Insurance Premiums are Calculated

Insurers calculate car insurance premiums on a case-by-case basis. This means that it is not possible to put a standard price on a car protection policy. In fact, the process of deciding premiums varies quite a bit from one insurer to another, making it is almost impossible for the customers to know every single factor that is taken into consideration.

However, there are some things that you can consider to work out a rough estimate of how much your policy may cost. Basically, when you apply for car insurance, your insurer assesses the possibilities of your vehicle meeting with an accident or getting damaged. Broadly speaking, the factors influencing their decision can be classified into two – the profile of the driver and the profile of the vehicle.

Profile of the Driver

To the insurer, certain personal details of the driver are crucial in deciding how vulnerable the vehicle is to accidents and damage. These personal details have been selected based on research data.

  • Driver’s Age: Premiums vary depending on how old the driver is. Those below the age of 30 are considered riskier than those aged between around 30 and 60. If you are in the early 20s or below, there are even chances of the insurer charging you a Young or Inexperienced Driver Excess.
  • Driver’s Experience: Premiums will be higher for drivers who have had several accidents. Sometimes, the insurer may even refuse to cover someone with no experience. The more years you have on the road without an accident, the more reliable you are.
  • Claims Made in the Past: Insurance companies are keen to reward those who make fewer claims as they can be considered of low risk. For every year you drive without a claim, an insurer may offer you a No Claim Discount or a No Claim Bonus, which could lower your premiums.
  • Other Merit Points: Apart from the No Claims Discount, you may also be eligible for Certificate of Merit or Safe Driver Discount if you have no traffic offences or demerit points in your name.
  • Sex of the Driver: Men are considered more prone to risks on the road and hence if the car is driven by a man, the premiums will be higher.
  • Nature of Use: If your job requires you to use your car extensively, the chances of you having an accident are high. This, in turn, translates to higher premiums.
  • Number of Drivers: In most cases, you will have an option to decide on the number of drivers who require coverage. This could be a single individual, a few specific drivers, or anyone who takes your car out.

Profile of the Vehicle

The kind of car you are insuring will also play a major role in deciding the premiums because the costs associated with repairing cars differ from one brand and model to another.

  • Vehicle’s Brand and Model: The cost of your car is a major factor in deciding the premium rates. This is because, generally speaking, the cost of repairing an expensive car will be higher due to the high cost of spare parts.
  • Vehicle’s Age: Premium rates will vary depending on how old the car is. Before deciding on whether to buy a new or used car, check with the company on how they factor in the age of the vehicle into premium-rate calculation.
  • Vehicle’s Power: The size and power of your car’s engine may also be considered when deciding premiums. Cars with a turbo engine and high engine capacity (cc) will be costlier than those with standard engines and low capacity. This is because the owner of a powerful car has the option to drive it faster, which in turn, could result in accidents.
  • Discount on Off-Peak Cars: If your car has an off-peak status, you may be eligible for a certain price discount.

Other Factors to Consider

Apart from details of the driver and the vehicle, there are certain other factors insurance companies take into account. Key among them is the kind of coverage you require. Fortunately, unlike the above-mentioned points, you have a fair amount of control over these.

As per Singapore law, a car owner should have at least a third party insurance. But in case of an accident, this insurance will not provide coverage to your car. So most people prefer a comprehensive car insurance policy, which has a higher premium.

When buying a car insurance policy, companies may give you an option to club certain add-ons. This could include the option of a replacement car when your own car is in unusable condition or a transport allowance for use while your car is being repaired.

You may also be able to decide whether you want a high or low excess. Excess, or deductible as it is sometimes known, is the amount you will have to pay for damages before the insurance company makes its contribution. Different insurers offer different excess rates and, generally, the higher the excess, the lower the premiums.

To sum up, insurance companies decide the cost of premiums for your car insurance after careful consideration of the vehicle and the driver. Several of the factors that are taken into account, like age and gender, are beyond your control. But you can maintain a safe driving record and select the right kind of plan to keep the premium rates as low as possible.

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