Last Updated 14th of April, 2010

How is my car insurance premium determined?

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For the risk that you may be involved in an automobile accident, a car insurance company charges a premium to cover this risk potential. Calculating this risk is based on several factors that insurance company staff, those called actuarians, plug into risk analysis systems to determine if you are a low or high risk. The type of vehicle, type of engine, your age, driving history, and gender are the most common factors used to determine premiums.

Insurance companies will review each factor by auditing a person’s driving history, and if a certain number of infractions exist on the driver’s record, a negative score will be awarded. Each factor is evaluated in a similar manner until an overall score is generated which represents the driver’s risk potential for an accident. A premium is then computed based on this calculated risk potential score.

To stay in business, auto insurance companies have to be very accurate on these premium calculations, or they could quickly go out of business. Likewise, keeping a clean driving record and not purchasing a sports car can help lower your car insurance premiums.

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