How are Car Insurance Premiums Calculated?

In Florida state, car insurance is a legal requirement. While the minimum car insurance requirements in Florida aren’t very difficult to adhere to, the need to pay auto insurance still begs the question – how are your car insurance premiums calculated? Knowing how insurance companies calculate your premiums can be useful. Once you know what factors are important to consider, you might find that there are things you can do to help keep your premiums lower.

How Your Car Insurance Premiums are Calculated?

Car insurance premiums are a monthly charge that insurance providers require to allow you to take out a policy. As long as you pay your premiums, your car insurance policy should cover you for personal injury protection and property damage liability. Depending on your policy, you may also be covered for some form of bodily injury liability.

However, when it comes to your auto insurance premium, it’s important that you know what you’re paying for. Your car might be worth far more than the maximum payout your insurance provider would offer in the case of a write-off or loss through theft.

The extent of your cover plays a big role in how much you pay for car insurance each month. More cover usually goes hand-in-hand with higher premiums. While the extra cost can seem like a waste of money, keep in mind that you’re getting more benefits for the money you spend.

With that in mind, cutting corners by taking out less cover than you need is risky. When shopping around for auto insurance, you must be clear on how much cover you want even before taking out a policy. This way you can approach insurance providers with your requirements and ask them to quote on a policy closest to your list of specifications.

To calculate your premium, auto insurance providers will look at your risk portfolio and the extent of cover you want to purchase. If you have a low risk portfolio and you’re taking out minimum cover, your premiums will be low. People with a high risk portfolio applying for a lot of additional cover, will pay the highest premiums.

The reason why premiums are calculated this way is because insurance providers run a higher risk of claims from a person in a high-risk portfolio as opposed to a low one. This often means that the insurer will insure some of its highest risk customers at a loss – as their claims amount to a higher cost than all their premiums combined.

Most Important Factors for Calculating Your Risk Portfolio

Your insurance company will look at several things when deciding what to charge you for insurance. Most of the factors will remain the same from one insurer to another. Some of the most important factors in calculating car insurance premiums include:

  • The make, model and age of your car
  • The neighborhood where you currently live
  • Where you park your car at night and during the day
  • Your personal profile (age, gender, driving record etc.)

Other factors can also play a big role in how much you pay every month. For example, the number of regular drivers you have registered on your auto insurance policy can play a role, as well as your estimated annual mileage.

How Your Personal Profile Affects Your Car Insurance?

Your personal profile has a large impact on your monthly premiums – more so than a lot of other considerations. Although you can’t change many of things regarding your personal profile, it’s still good to know what information insurance companies will look at when considering your risk portfolio.


Unfortunately, age and risk are closely correlated. While it seems unfair that some people must pay higher premiums based on their age, there’s statistical data to support charging people in certain age groups higher premiums.

Insurance companies charge older drivers less than younger ones. Drivers younger than 25 are hit hardest by the age profiling that insurance companies adhere to. But when you think about it logically, it makes sense. Older drivers have more experience, which is one of the reasons they statistically fall in a lower risk category.

The disparity between what young and old drivers pay is often astounding – with some estimating that drivers younger than 18 can pay up to $4500 per year more in auto insurance premiums than drivers older than 56.

The optimal age group, where premiums tend to be the lowest is between 26 and 45. While you can’t control your age, you can take comfort in knowing that your car insurance premiums will be the one thing that gets better as you age.


Once again, it seems discriminating that insurance providers would base premiums on your occupation, but as with age, they use verified data to derive their conclusions.

For instance, your risk of getting in an accident will be much higher if you’re an ambulance driver, or you operate emergency vehicles. Even though the vehicles you drive don’t belong to you, your insurance provider is legally obligated to pay out your personal injury protection benefits when you\’re involved in a motor vehicle accident – even if your vehicle wasn’t involved.

Your insurance provider will also consider how much, on average, a person in your occupation must drive around for work.

Driving Record

Your driving record is the one part of your risk portfolio you have more control over. Although you can’t change your driving record overnight, you can improve it over time.

The most important things insurers look at for your driving record is whether you’ve been involved in an accident recently, as well as your past claims and traffic offenses. If you’ve claimed from your auto insurance in the past few years – even if it was for an incident where you weren’t at fault – your premiums will probably be a bit higher.

Past traffic offenses will add points to your license. Your auto insurer will consider the points on your license to evaluate whether you’re a responsible.

How Your Car and Environment Affect Your Car Insurance?

Luckily your car insurance premiums aren’t based solely on your profile. While you can’t change easily change your occupation or driving record, you have more control over your vehicle and environment.

Your Car: Model and Features

Car insurance providers categorize almost all different car models in various risk categories. To calculate the risk category of each different car model, insurers will look at how secure and safe it is.

Some cars run a higher risk of theft than others, for instance. A car model that runs a higher risk for theft will be categorized as being less secure, even if it’s fitted with more security features.

Safety is also a concern. A car with ABS and airbags will get a better score than one without built-in safety mechanisms.

Some important features to reduce your premiums include an alarm system, immobilizer and ABS. Regularly servicing your car is also vital to ensure you can claim your benefits when you need to.

Lastly, the price of your car will affect your premiums. More expensive cars are generally cost more to insure as opposed to ones that are mid-range in price. This means trading in your luxury car for a more modest one could save you a lot on insurance.

Environmental Factors

The area where you stay has an impact on your premiums. Insurance providers have crime statistics for different neighborhoods. If you live in a neighborhood where the risk of auto theft is higher, you’ll pay more in premiums.

Another environmental factor which is completely out of your control is weather. If you stay in an area where there’s a higher risk of hail storms, your premiums will be higher.

But you don’t necessarily have move town to get lower premiums. Parking your car in a secure, locked garage can work to your benefit. Not only will this keep thieves away, but your car is also protected from the elements, such as harsh sun, hail and snow.

While the different factors that insurers use to calculate your car insurance premium seem largely out of your control, there’s still one thing you can do to lower your premium. If you up your excess, your premiums will lower accordingly. However, upping your excess means you’ll be liable to pay a larger amount of damage yourself whenever you claim. If you have expendable savings that you could use to supplement claims, upping your excess is a viable way to save, but without a savings pool to tap into, upping your excess could lead to a dilemma where you can’t claim from your insurance because you don’t have funds available to pay the excess.

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