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Is the Quote Fair? How to Calculate an Insurance Premium

Americans spend on average about $125 per month or $1,503 dollars a year on car insurance. You may be spending more on auto insurance if you live in Michigan, West Virginia, Georgia, or other states.

The question you need to consider is: Are you paying too much for your auto insurance?

You might be ready to switch carriers because you aren’t happy with your current coverage. While many insurance company ads may promise the best price and protection, that doesn’t mean the carrier is your best option. How can you know the company isn’t ripping you off?

It all starts with knowing how to calculate an insurance premium. Don’t know where to start?

We’ve got you covered. We’ll tell you all about how insurance premiums are calculated. Read on to put your car insurance blues to rest and keep some money in your pocket.

What is an Auto Insurance Premium?

Your auto insurance premium is the payment you make to maintain your car insurance policy. Your payment may vary depending on your coverage and the payment option you choose. You may pay your auto insurance coverage annually, monthly, every 3 or 6 months.

It will depend on your insurance provider. Some companies may offer a discount for paying your policy upfront in full. You should consult your insurance agent to learn more about your payment options, methods, and discount eligibility.

How to Calculate an Insurance Premium?

When it comes to how insurance premiums are calculated there isn’t a one size fits all formula. Every carrier has its own underwriting guidelines that determine your insurance premium cost. Before shopping around for your next auto insurance policy, you should consider the factors that can influence the pricing of insurance.

You may think the insurance carrier only needs your personal information and details about your vehicle. But, they will request more information to assess their risk. Don’t forget your insurance coverage is the amount of risk or liability covered by the insurance carrier.

During the underwriting process, your insurance carrier will ask questions and request more information. Their questions will depend on the factors they use to determine your premium. Here are 7 factors that can influence the pricing of insurance.

1. Types of Coverage

One of the major factors that determine your premium is the types of coverage you want in your policy. Before choosing the types of coverage, you should research your state’s minimum auto insurance coverage. Some states may require property damage liability, bodily injury coverage per accident and person, among other types of coverage.

While you may focus on the benefits of life insurance coverages, we often tend to neglect to take a hard look at our car insurance coverage. It’s important to choose the types of coverage for your car insurance policy according to the protection and benefits. If you choose more than one policy, you may be eligible for discounts like the insurance carrier from this website.

2. Coverage Limits

Another major factor that influences your premium is the coverage limits you choose. You should consider asking for your minimum state requirements. Some of the most common state requirements are.

  • 20,000 to 25,000 limit for bodily injury coverage per person
  • 40,000 to 50,000 limit for bodily injury coverage per accident
  • 10,000 to 20,000 limit for property liability coverage

These limits may vary on a state by state basis. Other states may ask for additional coverage such as personal injury protection or uninsured motorist coverage. Your state’s Department of Motor Vehicles (DMV) website may offer more details about the minimum car insurance requirements you must meet.

3. Your Location

Believe it or not, your location will determine your insurance premium cost. They use factors such as the number of car accidents in your state, car repair costs, among other factors.

Every state has its own requirements to operate and own a vehicle in their jurisdiction. While you may be spending less than the national average, your car insurance premium may skyrocket if you move to another state. Also, driving through areas with high crime rates may translate into higher premiums.

4. Your Driving Record

All insurance carriers will take a look at your driving record. Your record lets them know everything about your driving history. Some of the details in this report are your current driver’s license status, serious traffic violations, at-fault accidents, among other information.

5. Your Personal Information

Your age and gender may determine the cost of your premium. Most insurance carriers consider individuals 25 and older as mature drivers.

Females and individuals in this age group tend to be involved in fewer serious car accidents. If you are a member of these groups, your insurance carrier may offer a lower premium quote.

6. Your Credit Score

It might surprise you but, insurance carriers use your credit scores to determine your premium. If your credit score is less than perfect, your premium may be higher than the average auto insurance premium cost.

You should consider checking your credit score before applying for your car insurance. Keep in mind that in some states it’s illegal for insurance carriers to use your credit score to determine your premium cost.

7. Your Vehicle and How You Use It

Your vehicle is another factor your carrier uses to set your insurance premium. Insurance carriers consider where you keep your vehicle, how often you drive it, repairs cost, among other factors.

They may ask where you park your car to determine the risk of vandalism or theft. Also, your carrier may ask your daily mileage to know your chances of getting involved in a car accident.

Can You Get the Best Car Insurance Coverage at the Right Price?

Yes, you can get the best auto insurance coverage with the right price tag. Understanding how to calculate an insurance premium is the first step to finding the best coverage. Remember that every carrier takes into consideration different factors.

It’s recommended to shop for your car insurance coverage with different carriers. Depending on their coverage and underwriting process, some carriers may offer more affordable quotes than others. Keep in mind that you should consider choosing the insurance carrier with the best car insurance rating and the most complete coverage.

Now you know everything about how insurance carriers calculate your auto insurance premium. Do you need auto insurance coverage for your business? Read our article for your ultimate guide to business auto insurance.