How are car insurance premiums determined?

Car Insurance Premium is the amount which is paid to an insurance company to reduce the risks associated with owning a car. In adverse situations, like accidents, damage or theft, the car insurance provider pays the owner some or all of the costs in lieu of the insurance premium paid.

The amount of car insurance premium depends on various factors and varies on a case-to-case basis. The factors described below are considered when the insurance providers determine the premium to be paid for a particular car.

Make and model of the car

The make and model of the car determine the insurance premium to a large extent. The premium is higher for faster cars, for cars that have expensive parts and for cars with higher engine capacity. The coupes and turbo-charged cars are also expensive to insure and off-peak cars cost lower to insure.

Age of the car

Age of the car also determines the amount of insurance premium. In general, premiums are high for new cars and keep decreasing as the car keeps getting older. However, this varies a lot from insurer to insurer.

Gender of the driver 

The insurance premiums for cars driven by female drivers are less than those driven by male drivers. Interesting fact: it is considered that females are less reckless drivers than males and hence the difference!

On average, the insurance premium paid by female drivers is about S$40 to S$400 less than what is paid by the male drivers. In some cases, the marital status of the driver also affects the premium.

Age of the driver

The insurance premiums are high for drivers under the age of 30 and those above the age of 70. It has been observed that drivers in their 20s pay the highest insurance premiums. Above the age of 40, the premiums usually stay the same.

Driving Experience of the driver

The insurance premiums are higher for drivers in the first year of their driving. The premium may get reduced when the driver has certain accident-free years on the old. This determines how risky is the driver on the road.

Claims history of the driver

The insurance premiums for cars are largely affected by the claims history of the driver. If the driver has had no previous claims, he gets No Claim Discount and gets a lower premium.

Similarly, if the previous claims are high, the insurance premiums will also be high. The claims history helps the insurer to determine how risky it is to ensure the particular driver.

Demerit Points

This is a different determinant from the no claims discount. This is related to the traffic violations by the driver.

If the driver does not have traffic violations under his record, he will be provided with a Safe Driver Discount and takes off 5% from the premium. More the demerit points, the more are the premium.

Vehicle Usage and Modifications

The car insurance premiums are also affected by the type of usage of the vehicle. The more the vehicle is to be used, the more is the premium.

Thus, premiums are more for commercial cars and those who do not have to use their car regularly get a discount on the premiums. Similarly, the modified cars have higher premiums than non-modified ones.

Own Damage Excess

If the driver chooses to pay more of the claims amount through his own pocket than taking it all from the insurer, the insurance premium gets reduced.

Thus, multiple factors help in determining the car insurance premiums. It is a combination of all or most of these factors that are considered by the insurance providers before they decide the premium to be charged from a driver.

*The advice offered in this column is intended for informational purposes only and not intended to replace or substitute for any professional, financial, legal, or other professional advice. If you have specific concerns or a situation in which you require professional help, you should consult with an appropriately trained and qualified adviser.