How do Car Insurance Premiums Work?
The Car insurance industry is big business. And not understanding how car insurance premiums work could cost you money. A recent study found that Australians spent $3 billion more than they needed in insurance coverage. It’s time to learn more and pay less. Many factors impact the cost of your car insurance premium.
Facts About How Car Insurance Premiums Work
1. It’s Against the Law to Drive Without Insurance
When you register your car, you pay for Compulsory Third Party Insurance (CTP), which is required by law. However, there are four basic types of insurance to choose from. In addition to the compulsory insurance required by law, you can also choose from Third Party Property Insurance, Third Party, Fire & Theft Insurance, and Comprehensive Coverage. Comprehensive coverage is the most common, but most expensive type of insurance. The more coverage you have, the more you’ll pay. Be sure you’re not spending too much on your car insurance for coverage that you don’t need or want.
2. The Lower the Risk, the Less You Pay
Insurance policies involve the transfer of risk. An insurer agrees to cover you and subsequently compensate you in case of an accident. As part of the process, your car insurance company is going to ask you a lot of questions to determine if you are a low risk or high risk customer. The lower the risk, the less you’ll pay in insurance. This means that having a safe driving record and a no claims history can lower your insurance
A No Claim Discount is determined by your insurance history and driving record. This rating subsequently increases each year to a predetermined maximum for each year that you are claims free. In addition, younger drivers will pay higher premiums and older drivers will pay lower premiums. In the insurance business age does matter. And maturity does have its rewards.
3. Where You Live Makes a Difference
Many different factors can affect the cost of your insurance. One of those factors is where you live. Where you park your car can also make a difference. For example, parking your car in your garage, rather than on the street may save you money. The number of miles on your car may also make a difference in the number of insurance dollars you pay: Low miles can create an opportunity for insurance savings that makes sense. The less you’re on the road, the lower the risk that you’ll be in or cause an accident.
4. The Lower the Premium The Higher the Excess
Your premium is the amount of money you pay for your car to be insured. However, in the event of an accident, you might also have to pay an excess. This is the amount of money that you must pay out of pocket for car repairs and expenses. Premiums and excess are the two main costs to consider when choosing a car insurance policy. Because the higher your premium, the lower the excess you pay. However, the lower your premium, the more you’ll have to pay in out of pocket expenses in the event of an accident or claim.
Knowledge is invaluable in helping you keep your car insurance costs down. Be sure you’re aware of what your car insurance covers. Always read the fine print.
This article contains general advice about car insurance. The author has not taken into account your financial situation or needs and you should consider whether the advice provided is appropriate for your own circumstances before relying on it.
Filed Under: Understanding Insurance
