How Is Car Insurance Calculated?

Updated on January 10, 2020

You may have been wondering how the insurance companies come up with their figures on how much you have to pay for your auto insurance. Well, after you’re through with this read you’ll know all you need to concerning how the insurance providers calculate your car insurance premiums. 


Insurance companies don’t look into a crystal ball to tell you how much you have to pay in premiums, there are certain procedures they follow to arrive at the figure you’ll need to pay for auto cover. 

The base insurance companies start their calculation from is the likelihood of a customer making a claim. A road user prone to involvement in accidents is normally going to pay much higher than a driver that hasn’t had any road trouble in years. The auto insurance policy providers have other factors they look at. Let’s take a look at them:

Which factors affect car insurance rates most?


Insurance policy providers calculate premium payments based on the age of the driver of the vehicle. Calculation of payments for car insurance by age is very effective, as statistics back older and more experienced drivers on the road more than their much younger counterparts. This is because older drivers are regarded as possessing more driving experience meaning they are less likely to be involved in accidents that could cause the insurance company more money in repairs. This criteria means that younger drivers will have to pay more in premiums due to the low level of road experience they currently possess. 

Some insurance policy providers range the young drivers as within the ages of 17 to 25 years. Other companies rate an experienced driver as an individual that has been driving for at least a decade. So, if you want your insurance premiums to drop, you have to start building on that experience as it would help you save more money in the long run.

Type of car

Another factor the insurance company considers when calculating your premium is the vehicle you intend to insure. It is a fact that older vehicles are much cheaper to insure than much newer ones based on their difference in value. But that isn’t the only thing insurance providers look at. They also consider the features of the vehicle and the expenses that could be incurred from fixing the car in the event of an accident. Latest car models fall into this category as they are fitted with advanced technology which could require a lot of money to fix. 

Also, when looking at the type of car it is important to notify your insurer whenever you make an upgrade on any of the car’s features. Many car owners may not know that a change made to any of the car’s inner and outer features may render any claim you wish to make in the future invalid. Informing your policy provider may result in a hike in premium payments, but your investment will be secure for whenever you need it.


Where you live or make use of the vehicle may determine how much you pay in premium. It is a fact that busier roads tend to have more accidents, and your policy provider will consider this when calculating your premium. So, if you live close to one of the busiest roads in your area known for frequent accident occurrences, your premium could be affected.

How you use your car

You may think that purchasing an auto insurance policy has nothing to do with the usage of your car when calculating premiums. It is a fact that how you use your car will determine how much the insurance company will charge you. If your vehicle is used for public transport, like a taxi for example, the amount you have to pay in premiums will rise. This is because the likelihood of the car getting involved in an accident continues to increase as the hours go by. On the other hand, a privately-owned vehicle will need to pay lesser in premium payments because of the sparing use of the vehicle.

Driving history

When calculating your premiums, insurance companies take a detailed look at how you’ve been doing on the road and whether you have any dent on your record. If you haven’t made in any insurance claims in a few years, the insurance premiums you have to pay significantly drop but in the event you make insurance claims very often, your premiums will equally keep going up very often. 

Type of cover you buy

The type of insurance coverage you purchase is also a determining factor of your premium payment. Auto insurance coverage comes in three forms – complete auto insurance; third-party auto insurance; and the third-party, theft and fire insurance policy. 

A complete auto insurance coverage ensures you have all the available insurance policies for a vehicle. This insurance plan is regarded as the most expensive when it comes to auto insurance but it has an advantage when it comes to the calculation of premiums. The other two types of insurance have the simplest forms of auto insurance cover, and they get to pay more in premiums if there are many incidents attached to their driving history. Insurance companies recognize the investment of the purchaser of a complete auto insurance plan. An insurance cover provider reduces the amount of premiums for a complete auto insurance buyer over time in the event there are no external factors that could cause an increase in the payment. 


Now that this information is in your possession, you have all you need to keep beating down your insurance premium payments. When you adhere to the laid-down rules for the transport system and qualify for some certain requirements, the money you have to pay to keep your car insured will continue to reduce

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