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| How Car Insurance Companies Calculate Your Premium |
How your insurance premium is calculated depends on various
factors. Some of the factors can be determined or selected by you, but
unfortunately most of the factors such as your age, where you live or
your marital status are out of your immediate control.
THE VALUE OF THE CAR
Insurance
companies usually covers vehicles at their 'Market value', except if
requested or stated otherwise. The 'market value' of a car revers to the
average between the trade-in and retail price.
The trade price is
the price a second hand auto dealer will pay for a used vehicle whereas
the 'retail price' refers to is the value that the car 'retails' for if
you were to buy it from an auto dealer. The 'trade price' off a vehicle
is basically the lowest value of a used car, and the 'retail price' can
be seen as the highest valuation of a used car.
Market value is calculated with this formula: Market value = (Trade value + Retail value) / 2
The
premium is then calculated based on the car's market value, which takes
into account the make and model, age, condition of the vehicle and the
resale value, and the value of all additional accessories.
MAKE / MODEL OF THE CAR
Types
of cars vary greatly - from Luxury SUV's, a family sedan to a
contractor's faithful old bakkie. It can hence be expected that the make
and model of a vehicle have a big influence your car insurance premium.
Some vehicles would cost a lot more to repair while other cars could be
more at risk of being stolen or hijacked. Remember, each car make /
model has its own claim record and the insurer calculates the vehicle
premiums based on its own claim experience.
The age of the vehicle
will have a definite influence. Older cars are often cheaper to insure
than their more modern counterparts. Older, second hand cars may be less
expensive to replace, but it may be difficult to get parts for the
vehicle. Big engine capacity, high speed and younger drivers are usually
associated with sports cars and will raise the premium significantly
whereas safety features offered with a particular vehicle would in turn
positively influence your premium.
TYPE OF INSURANCE / COVER
Two
main types of car insurance cover exists in the market and some
variations of the two main types. Comprehensive insurance is very
extensive and covers injury to other people or damage to their vehicle /
property in an accident as well as your own vehicle for accidental or
other damages, theft and hijack, and some 'acts of god'. It is therefore
the most expensive type of car insurance.
Third party insurance
is quite limited and is also the cheapest of the options. Generally, it
covers you for damage to another party's vehicle and costs associated
with the accidental death or injury of third parties involved in the
same accident, but you are not covered in any way.
Some insurance companies may also provide a discount on your car insurance if you also maintain other policies, such as homeowners' or life insurance with the same firm.
Some insurance companies may also provide a discount on your car insurance if you also maintain other policies, such as homeowners' or life insurance with the same firm.
WHO YOU ARE PLAYS A BIG ROLE
AGE
As
you get older, seek out discounts at the ages of 21, 25 and even 55
which is common milestones where insurers consider a statistical
reduction in the risk of a driver. When turning 60, you may be eligible
for still more discounts. Check to see if your insurer offers a discount
for retirees.
If you have kids below the age of 21, insure them
on the parents' policy rather than a separate policy to save costs.
Insuring a teen driver can be expensive, but teenagers who maintain a
very good school average (Usually at least a B-average) could qualify
for significant discount. Never list yourself as the main driver on a
teenage driver's policy if you are not - This is known as fronting and
can nullify your insurance cover with the company.
GENDER
Single
males under the age of 25 are considered the highest risk and pay the
highest rates. Statistics show that male drivers are involved in more
accidents and female drivers, so insurance companies charge young men
higher premiums than women of the same age.
OCCUPATION
Many
car insurers consider education and occupation when they set rates. Even
though they usually do not publicise exactly how much a premium is
affected by this, specific discounts are offered for people who work in
or have degrees in particular fields.
Vehicle insurance companies have found that people in the following fields are statistically less risky than other occupations:
Vehicle insurance companies have found that people in the following fields are statistically less risky than other occupations:
• Educators: College professors and school teachers
• Medical professionals: Doctors, surgeons, dentists and other
• First responders: Police officers, fire-fighters and emergency medical technicians
• Scientists: Any field with suitable degree
• Engineers: A bachelor's or higher degree in Engineering or Architecture
• The Military: Active or retired military-related associations, Pilots
• Medical professionals: Doctors, surgeons, dentists and other
• First responders: Police officers, fire-fighters and emergency medical technicians
• Scientists: Any field with suitable degree
• Engineers: A bachelor's or higher degree in Engineering or Architecture
• The Military: Active or retired military-related associations, Pilots
MARITAL STATUS
Most
insurers factor your marriage status into their risk equations. Those
who are married are viewed by some insurers as less risk prone, and
qualifies for a discount.
EDUCATION
Almost all insurers will
offer a discount to anyone with tertiary schooling, particularly
persons with a degree are considered less risky than those without one.
Some insurers might even offer further discounts to alumni of certain
universities.
DRIVING / CLAIM HISTORY
Drivers with a good
driving record with little or no previous claims may benefit when they
purchase a vehicle insurance policy by receiving lower premiums.
First-time drivers or drivers with no history on South African roads
could expect a higher premium until they build up a reputation as a
responsible driver.
WHERE YOU LIVE
Where you live and work
plays a big role in the cost of you insurance premium. Urban areas, with
greater population densities and heavier traffic, get higher rates than
rural areas. Your specific neighbourhood or whether you live in a
secure housing complex also plays a role. If your car is kept in a
locked garage at night where you live or in a secure basement during the
daytime where you work, you would see a reduced premium rate.
SECURITY FEATURES
The
premium may be reduced if the vehicle is fitted with security features.
Cars fitted with anti-theft systems such as GPS Tracking devices,
visible wheel, steering locks or ignition cut-off anti-hijack systems
are less likely to be stolen, and hence less expensive to insure against
theft.
BUSINESS VS PRIVATE USE
If you use your car for
business regularly, you would inevitably have a higher annual mileage
rate. Higher than average mileage rates increases the chance of being
involved in an accident which translates into higher risk to an insurer
and your premium would be adjusted accordingly.
EXCESS AMOUNT
Most
insurers allow you to negotiate the amount of the excess you are
willing to pay. This means you can undertake to bear a fixed amount of
the loss for every claim, and hence get a substantial discount on your
premium. Generally, the higher the 'excess payment' value that you agree
for, the lower your premium will be.
NO CLAIM BONUS
Insurance
companies usually offer a 'no claim' bonus to policy holders who
maintains a 'clean record' for a specific period of time. The longer the
period you have not claimed, the greater the discounted premium you can
expect to pay.
CREDIT RECORD
Insurers also make use your
credit score as part of the criteria for calculating your insurance
premium. Insurance companies see people who take good care of their
financial situations, as typically a more careful type of driver.
Commonly, the better your credit score, the lower your insurance premium
will be.
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