What Determines the Price of an Insurance Policy

Did you ever wonder what determines the price of an insurance policy?

Insurance companies have a lot of latitude when it comes to determining premiums, premium rate structures and overall costs for your insurance policy. In some cases they include location, gender, credit scores, marital status, occupation, and even your level of education. Using these traits is sometimes considered to be discrimination by the company. Regulations are in place to prevent improper application. Nonetheless, your attention is needed to protect yourself.

The type of vehicle you have will affect your insurance cost. Sports cars always cost more to insure. Family cars, like the typical 4-door sedan, cost less to insure. It is generally safe to say that the value of the car as listed in the Kelly Blue Book will influence your policy cost. The Kelly Blue Book identifies value based on the year, the model, the make, the kind of car, the condition, the number of miles on the car and more.

It seems obvious that more costly vehicles will require higher insurance rates. What is not so clear is the difference between the cost of your car and the cost of replacing it when it has been damaged. Depreciation sets in the minute you drive that car off the lot.

Unless you paid cash, up front, for your car, you could find yourself in a touchy situation where your insurance for the total vehicle value is actually less than what you still owe on the car. That is where things like ?gap? insurance come in to attempt to cover that difference for you. It does cost more for this type of coverage. The difference is usually about $20 per month added to your premium.

If you neglect the basic parts of collision and comprehensive insurance, you could still end up stuck. Your car could be a total loss in an accident and your liability insurance will not help you replace it. If you did not include medical coverage, you may also have hospital expenses to consider.

Familial status also must be taken into account when it comes to car insurance cost. If you have ever wondered why your insurance is so much different than your married brother?s, the answer is that he is married. According to statistics, married people have fewer accidents and are therefore better insurance risks.

Location is another consideration. Perhaps your zip code is close to a high crime area. Insurance companies will adjust your rates accordingly.

Age is another consideration as much as your driving record and driving experience.

How many miles each day or each week do you drive your car?

There are many variables that insurance companies apply to calculate your rate.

While this may seem unfair, you need to know that in order to make rate changes, the car insurance companies must comply with regulations from the Department of Insurance. So try not to take the rates too personally.

Once you know what the policy will cost, make sure to read it carefully, ask questions and understand what you are paying for.