Understand How Auto Insurance Quotes and Premiums Are Determined

Determining rates as done by insurers is similar to determining price of product by a any manufacturer. Because, premiums is the revenue for providers, which has to be equal to the sum of cost of business operation and profit expected. Therefore, to know the process of calculating premiums, one should know the tentative cost of coverage, which in turn is based on the potential risk to the covered person as well as vehicle.

So, the first step is to know the factors based on which providers determine a car insurance quote is evaluating the potential risk associated with covered person(s) and vehicle. These factors are:

Important Factors for

Calculating Insurance Premiums

- Age & Gender

-  Married/Unmarried

-  Residential Area-Urban/Rural

-  Driving History

-  Years of Driving Experience

-  Vehicle details

-  Use of vehicle in terms of mileage and whether primary/secondary use

-  Discounts & Deductibles

On the other hand, the cost may also be affected by items that the provider may have experience with in the past. If they have had several claims that they have had to pay out in the past, they may charge more for potential customer that land in that category. An example of payouts would be:

• Compensation towards bodily injury to one or more people,
• Payment towards property damages,
• Compensating for thefts or cases of vandalism
• Cost of defending lawsuits against insureds, and
• Administrative expenses.

In addition to the above, insurance companies take help from the following factors also, while deciding the cost of coverage i.e. premium:

• Statistical information about millions of drivers are available for  providers, through which insurers have identified features of drivers who are prone to risk for which insurers would have to pay.
• Some auto insurance companies also use credit history of potential purchasers while determining premium.

Based on the above factors and the extent of one’s risk that is offered to be covered, companies decide the cost of coverage. Also, a common misconception about automobile protection products is that premium is determined by the state. However, the fact is that state does regulate business practice but does not determine rates. However, whenever any auto insurance provider changes its premium rates, they have to file information with the department of insurance of the state. The ultimate method of locating a cheap car insurance company is by obtaining and comparing as many quotes as possible. This will help the consumer understand what price range they can expect to pay and eliminate those prices which may be unreasonable.