One thing not a lot of people know is how an insurance company comes up with the auto insurance rates it requires from its clients. As a result, a huge percentage of their clientele get confused and mad at them for charging them high rates. Although the saying, “ignorance is bliss” would be applicable here, there is no denying the comfort you will get when you find out how exactly they come up with the amounts you have to pay.
Although different companies have different bases on how they compute your auto insurance rates, here are the most common ones.
The first is your vehicle’s purchase price. It goes to show that the more expensive your ride is, the higher premium payments you will have to make to get it insured. For example, between a rich businessman who buys a $270,000 Ferrari and a simple forklift operator who buys a $25,000 Toyota, the businessman will have to pay more. Why? It is common sense; the more you pay, the more you get back in case a situation calls for it. In addition, the more you get back, the better you can pick yourself up from an accident.
The second basis is current value of your car. If you purchased an SUV for $70,000 last month, its current value may be around $40,000 today. This is because a used car is more or less 50% the value of a brand new one. This is why you can not test-drive a brand new car out of a showroom. Auto insurance rates are based on the actual and prevailing value of a vehicle.
The third basis is age of your automobile. The general rule is that the older your ride the lesser the amount it can be insured for. It follows that you will also pay lesser premiums. Exceptions are the classic vintage ones which become more expensive as they get older.
The fourth is the make and purpose of your vehicle. SUV’s usually cost more to insure than sedans and sports cars compared to your everyday home-to-work cars. Vehicles with specialized makes and purposes cost more to get covered than conventional vehicles you meet on the road everyday. This is because a specialized purpose exposes a vehicle to more risks and perils which means that there is a greater probability for you to get into an accident.
Auto insurance rates depend on the bases each provider uses. Here is a tip: the worse you feel after you lose your car, the higher premium rates you will pay.