How Are Car Insurance Prices Determined?

Much like the types of coverage and different policies available, car insurance prices vary significantly from person to person in the province of Alberta. The reason for this is simple – insurance companies look at a plethora of factors in order to calculate the risk associated with insuring a particular individual, and the higher the perceived risk, the higher the premium. But what are the factors that affect car insurance prices? There are many, and the process of risk calculation can be quite complex, but here are a few of the most common.

Age

One of the factors that most influences how car insurance prices are determined is age. Younger drivers will pay higher premiums, while older, more experienced drivers pay less for coverage. Why? Young drivers have less driving experience, are more susceptible to taking risks, and are thus more likely to be involved in accidents (there is a significantly higher rate of claims among young and new drivers). Drivers under 25 may end up paying hundreds or even thousands of dollars more for insurance coverage.

Sex

Particularly among younger drivers, sex plays a significant role in car insurance prices. For the under 25 demographic, male drivers pay an average of $500 to $2500 more than female drivers. In the 25+ demographic, the discrepancy is not as large as collision instances are roughly the same between males and females; thus, the perceived risk is similar.

Year/Make/Model of Vehicle

This is not as commonly known, but the vehicle you drive is also a significant factor affecting car insurance prices. In many cases, older cars are cheaper to insure, as their value has depreciated over time. The make and model of the vehicle affects rates because more valuable vehicles will cost the provider more if a claim is made for parts, repairs or replacement. Also, sportier models generally cost more to insure because statistically, these types of vehicles are involved in more accidents. These factors also affect car insurance prices because insurance companies use statistics to determine the risk of your vehicle being stolen.

Driving History and Experience

Drivers with a clean driving record and more experience get cheaper insurance rates. Infractions such as traffic tickets, collisions and the like result in higher rates, as does less driving experience. This is one of the reasons that age is such a significant factor in determining car insurance prices, with older, more experienced drivers seen as far less risky to insure.

Location

Your geography affects car insurance prices because once again, statistical evidence is used by insurance companies to help calculate potential risks. Factors such as population density, weather, road design and maintenance, and the crime rate of a particular locale are all taken into consideration. Higher density, higher crime rates, poor weather conditions and poor roadways result in more expensive premiums.