Understanding How Insurance Rates Are Calculated In Alabama


You might be wondering how insurance companies calculate your auto insurance premiums. For many years, I thought about it as well. Luckily, I found out the answers and this is what this article is all about.

Depending on your location, your local government or the insurance companies in your area normally determines your auto insurance rates. Using pre-defined regulations set by your local administration, insurance companies are able to give you fast and accurate calculations.

When insurance companies determine your rates, it does not rely on one single factor alone. What they do is like a puzzle, which tries to combine all sorts of elements and using their special formula to arrive at your individual insurance rates. Interestingly, not all insurance companies see these elements all the same, and that is why there are slight variations with the computations itself if you try to compare the quotes from the other providers.

Below are the factors that will likely influence the result of the calculations.

The type of car that you drive. There are generally two methods auto insurance companies would normally use. They get the model and make of your car, determine how much it would cost if that car would need some repairs, or how much would it cost if the car is stolen, determine the risk of having that car and then arrive at the price accordingly. The current market value of the car is a big influence as well, and they are excellent when it comes to that part – that is establishing the current fair value of your vehicle.

How you use your vehicle.  The idea is simple, the more you use your car, the higher the probability that you will encounter accidents. Having said that, those people who owns a car but rarely or seldom use it will most likely receive a lower insurance rate than those who travel far and wide to get into work or let say do extensive driving for some other reasons.  Another factor that most insurance companies consider is the driver himself. If you have many inexperienced drivers in your family then expect higher insurance rates.

Your location. If you live in a crowded place or in a metropolitan with lots of people and dense traffic, there is a greater likelihood of involving your car into accidents, vandalism and theft.  This signals the insurance companies that your rates should increase too.

Your driving history counts. When calculating your premium rates, auto insurance companies consider your driving records. If you have been into an accident before, they will determine how many times you were at-fault. They could work that out as far as 6 years or even longer. If you are a safe driver then you need not to worry about it. 

There are still other factors left out but those discussed were the basics. As I have said earlier, insurance companies will look at your data differently from the other which leads us to the idea of having multiple quotes before you buy your car insurance policy.