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How your insurance premium is calculated depends on various factors. Some of the factors can be determined or selected by you, but unfortunately most of the factors such as your age, where you live or your marital status are out of your immediate control. Gone are the days where only a few basic parameters determined the rate you pay. Insurance companies has come a long way and nowadays, the criteria for calculating insurance premiums has changed significantly and includes several complex parameters that are being considered to determine the premium rates. In this article we explain the main factors that influence the insurance premium that you pay for your car. THE VALUE OF THE CAR Insurance companies usually covers vehicles at their ‘Market value’, except if requested or stated otherwise. The ‘market value’ of a car revers to the average between the trade-in and retail price. The trade price is the price a second hand auto dealer will pay for a used vehicle whereas the ‘retail price’ refers to is the value that the car ‘retails’ for if you were to buy it from an auto dealer. The ‘trade price’ off a vehicle is basically the lowest value of a used car, and the ‘retail price’ can be seen as the highest valuation of a used car. Market value is calculated with this formula: Market value = (Trade value + Retail value) / 2 The premium is then calculated based on the car's market value, which takes into account the make and model, age, condition of the vehicle and the resale value, and the value of all additional accessories. MAKE / MODEL OF THE CAR Types of cars vary greatly – from Luxury SUV’s, a family sedan to a contractor’s faithful old bakkie. It can hence be expected that the make and model of a vehicle have a big influence your car insurance premium. Some vehicles would cost a lot more to repair while other cars could be more at risk of being stolen or hijacked. Remember, each car make / model has its own claim record and the insurer calculates the vehicle premiums based on its own claim experience. The age of the vehicle will have a definite influence. Older cars are often cheaper to insure than their more modern counterparts. Older, second hand cars may be less expensive to replace, but it may be difficult to get parts for the vehicle. Big engine capacity, high speed and younger drivers are usually associated with sports cars and will raise the premium significantly whereas safety features offered with a particular vehicle would in turn positively influence your premium. TYPE OF INSURANCE / COVER Two main types of car insurance cover exists in the market and some variations of the two main types. Comprehensive insurance is very extensive and covers injury to other people or damage to their vehicle / property in an accident as well as your own vehicle for accidental or other damages, theft and hijack, and some ‘acts of god’. It is therefore the most expensive type of car insurance. Third party insurance is quite limited and is also the cheapest of the options. Generally, it covers you for damage to another party's vehicle and costs associated with the accidental death or injury of third parties involved in the same accident, but you are not covered in any way. Some insurance companies may also provide a discount on your car insurance if you also maintain other policies, such as homeowners’ or life insurance with the same firm. WHO YOU ARE PLAYS A BIG ROLE AGE As you get older, seek out discounts at the ages of 21, 25 and even 55 which is common milestones where insurers consider a statistical reduction in the risk of a driver. When turning 60, you may be eligible for still more discounts. Check to see if your insurer offers a discount for retirees. If you have kids below the age of 21, insure them on the parents’ policy rather than a separate policy to save costs. Insuring a teen driver can be expensive, but teenagers who maintain a very good school average (Usually at least a B-average) could qualify for significant discount. Never list yourself as the main driver on a teenage driver’s policy if you are not - This is known as fronting and can nullify your insurance cover with the company. GENDER Single males under the age of 25 are considered the highest risk and pay the highest rates. Statistics show that male drivers are involved in more accidents and female drivers, so insurance companies charge young men higher premiums than women of the same age. OCCUPATION Many car insurers consider education and occupation when they set rates. Even though they usually do not publicise exactly how much a premium is affected by this, specific discounts are offered for people who work in or have degrees in particular fields. Vehicle insurance companies have found that people in the following fields are statistically less risky than other occupations: • Educators: College professors and school teachers • Medical professionals: Doctors, surgeons, dentists and other • First responders: Police officers, fire-fighters and emergency medical technicians • Scientists: Any field with suitable degree • Engineers: A bachelor’s or higher degree in Engineering or Architecture • The Military: Active or retired military-related associations, Pilots MARITAL STATUS Most insurers factor your marriage status into their risk equations. Those who are married are viewed by some insurers as less risk prone, and qualifies for a discount. EDUCATION Almost all insurers will offer a discount to anyone with tertiary schooling, particularly persons with a degree are considered less risky than those without one. Some insurers might even offer further discounts to alumni of certain universities. DRIVING / CLAIM HISTORY Drivers with a good driving record with little or no previous claims may benefit when they purchase a vehicle insurance policy by receiving lower premiums. First-time drivers or drivers with no history on South African roads could expect a higher premium until they build up a reputation as a responsible driver. WHERE YOU LIVE Where you live and work plays a big role in the cost of you insurance premium. Urban areas, with greater population densities and heavier traffic, get higher rates than rural areas. Your specific neighbourhood or whether you live in a secure housing complex also plays a role. If your car is kept in a locked garage at night where you live or in a secure basement during the daytime where you work, you would see a reduced premium rate. SECURITY FEATURES The premium may be reduced if the vehicle is fitted with security features. Cars fitted with anti-theft systems such as GPS Tracking devices, visible wheel, steering locks or ignition cut-off anti-hijack systems are less likely to be stolen, and hence less expensive to insure against theft. BUSINESS VS PRIVATE USE If you use your car for business regularly, you would inevitably have a higher annual mileage rate. Higher than average mileage rates increases the chance of being involved in an accident which translates into higher risk to an insurer and your premium would be adjusted accordingly. EXCESS AMOUNT Most insurers allow you to negotiate the amount of the excess you are willing to pay. This means you can undertake to bear a fixed amount of the loss for every claim, and hence get a substantial discount on your premium. Generally, the higher the ‘excess payment’ value that you agree for, the lower your premium will be. NO CLAIM BONUS Insurance companies usually offer a ‘no claim’ bonus to policy holders who maintains a ‘clean record’ for a specific period of time. The longer the period you have not claimed, the greater the discounted premium you can expect to pay. CREDIT RECORD Insurers also make use your credit score as part of the criteria for calculating your insurance premium. Insurance companies see people who take good care of their financial situations, as typically a more careful type of driver. Commonly, the better your credit score, the lower your insurance premium will be. For more information & automotive articles: www.driveit.co.za Pre-owned vehicles for sale in South Africa
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