10 Factors that determine your car insurance premium

Car insurance is a crucial part of car ownership, providing owners with complete peace of mind and financial protection in case of theft, accident, damage, or acts of god.

We have already discussed how to choose the right insurance policy, the essential car insurance add-ons, the types of claims, and much more. However, one thing that remains common among all policies and claims is the premium.
An insurance premium is the amount paid by a policyholder (individual or business) to the insurance company for the policy.

Before discussing the factors determining the insurance premium, let's first gain a better understanding of insurance premiums.

What is a Car Insurance Premium?

An insurance company stipulates that a policyholder (an individual or company) pays a predefined amount as a premium to avail the benefits of the policy and coverage. Specifically, auto insurance is a contract between you and the insurance company wherein you are protected against financial loss in the event of an accident or theft. All of this is in exchange for a premium, against which the insurance company agrees to pay for all the losses outlined in your policy.

Auto insurance coverage includes -

• Property: damage to or theft of the car insured
• Liability: any bodily injury or property damage to others
• Medical: cost of treatment, rehabilitation, and, in some cases, lost wages

Types of car insurance

A car owner has several options to choose from when it comes to car insurance. The list includes -

• Compulsory Third-Party Liability Insurance
• Comprehensive Car Insurance
• Collision Insurance
• Personal Injury Insurance
• Medical Payment Coverage

Also Read: Choosing the right car insurance policy in the Philippines

Factors to consider when choosing an insurance policy

A car owner must consider a few factors before choosing a car insurance policy so that whenever the need arises, the policy is there to cover. Included in the list are - premiums, add-ons, coverage, deductibles & excess, claim process, policy terms & conditions, premium payment options, and insurance provider.

Now we know that premium is one of the factors that a prospective policyholder considers before finalising the auto insurance. But did you know that certain elements affect your car insurance premium? Yes, that’s true. There are certain key factors that an insurance company considers at the time of a policyholder's premium calculation.

Factors influencing car insurance premium

• Client’s age & driving experience
• Type & value of vehicle
• Safety features
• Location
• Car owner’s driving record
• Credit history
• Annual mileage
• Frequency of claim
• Deductible
• Coverage Required

Also Read: Exploring the types of car insurance claims Filipinos can file

#1 Policy holder’s age and driving experience

One of the key factors determining a policyholder’s insurance premium is his/her age and driving experience. Wondering why? Well, as per a statistical study conducted, young and inexperienced drivers are more likely to get involved in a road accident. Thus becoming a risky combination for the insurance provider. This is the reason why insurance premiums are higher for young drivers compared to older and more experienced ones.

#2 Type & value of vehicle

The next crucial factor involved in determining your car insurance premium is the vehicle's type and price. For instance, old and inexpensive cars generally have low premiums, on the other hand, sport/luxury/premium cars are mostly charged with higher premiums as there are greater chances of theft and accidents involved.

The insurance provider also considers the vehicle's make, model, engine, size, and age to evaluate its risk profile.

#3 Safety features

Cars loaded with safety features like an efficient lock or an anti-theft device are eligible for a discount on the overall insurance premium. Why? Well, that's because, with these features in place, it becomes difficult for thieves to break down the car. These days, car manufacturers are enabling vehicles with more and more advanced safety features, which works in favor of both the car owner/policy holder and the insurance company.

#4 Location

One might find it strange, but the insurance provider also takes into account the location where the car is sold, like urban or rural etc.

If the car owner lives in an urban area, that means there would be more people, more cars, and more traffic, too. All these things together increase the risk of theft, accident, and vandalism of the car, thus leading to higher premiums.

Similarly, if the car owner lives in a far-off province, there is an increased risk of insurance fraud and the added cost of logistics in case of a claim, thus leading to higher premiums.

#5 Car owner’s driving record

When deciding the cost of insurance, the provider also considers the client's past driving record. The car is checked for previous claims, traffic violations, and accidents. Drivers with a clean record, free of accidents and claims, are generally rewarded with lower premiums. On the contrary, a car with a history of accidents, violations, and claims is put under the high-risk category and thus charged higher premiums.

#6 Credit history

Some insurance providers also consider the client's credit history when determining the insurance cost. Factors like the client's credit score, payment history, and outstanding debts are thoroughly checked while determining the premium. Also, policyholders with a good credit score tend to have fewer claims and thus are rewarded with a discount on the premium.

Also Read: Uncovering the impact of credit scores on car loans in the Philippines

#7 Annual mileage

The annual mileage of a car and its premium go hand in hand, i.e., the more a car is driven, the more its chances of getting involved in an accident or violation. Therefore, insurance companies consider estimated annual mileage an important factor when calculating premiums.

#8 Frequency of claim

A policyholder’s previous claims and coverage gaps affect his/her car insurance premium. How? Well, the ones with a record of multiple claims and lapses in coverage are put under the high-risk category and, therefore, charged more premium. On the other hand, clients with a clean claim history and continuous coverage get the benefit of lower insurance costs.

#9 Deductible

The last factor that affects a policyholder's premium cost is the level of coverage and deductible he/she chooses. Before moving on to how let us first understand what a deductible is. It is an amount paid by the policyholder before the coverage kicks in.

Higher deductibles mean you are willing to assume more risk in the event of an accident and thus lower premiums. Similarly, lower deductibles lead to higher premiums, as the insurance provider will have to cover more costs.

#10 Coverage required

Another factor affecting the premium of your car insurance is the amount of coverage required. While third-party insurance is compulsory, opting for comprehensive car insurance will incur higher premiums. Also, add-ons that you’ll choose will not only give higher financial protection, benefits, and peace of mind but will also increase the price of the insurance premium.

So, these are some of the factors that play a major role in deciding your insurance cost. But have you ever wondered what will happen if you do not pay your premium? Let us find out.

Other important factors

In addition to the factors mentioned above, there are a few additional critical elements that influence your car insurance premium.

• Local or imported car
• Accessories included in insurance
• Used type of car
• Engine capacity
• Exclusions and riders in car insurance

What if a policyholder stops paying insurance payments?

Premium not paid on time: When a policyholder misses out on a premium payment due date, the insurance company offers him/her a grace period without any penalty or cancellation.
Often the insurance company intimates the policyholder via email or SMS to pay the premium within the grace period.

Premium not paid at all: If the policyholder does not make the insurance payment even during the grace period or even after that, it would lead to the lapse of the policy.

Also Read: Stopped making car insurance payments? Here are the consequences you’ll face

Summing up

So, now you know what affects your insurance cost, thus allowing you to take the necessary steps to cut down on it. However, remember to choose an insurance policy that best suits you, pay premiums on time, and drive safely. And if, god forbid, something unfortunate happens, your insurance policy will cover it all.

Also Read: How do car modifications affect insurance in the Philippines?