How are car insurance premiums calculated?

Young drivers are often regarded by car insurance companies as being more likely to have an accident due to their inexperience behind the wheel. This means that if you have young drivers on your policy or you’re a young driver yourself, your premiums may be higher. If you don’t need to insure any young drivers, shop around for a policy that offers a discount if you exclude cover for drivers under a certain age.

The make and model of your vehicle is another factor that insurers use to calculate your car insurance premiums. For example, high-powered/performance vehicles may have high premiums. If you’ve modified your car, this may also impact how your car insurance is calculated.

Generally, if a car is expensive to repair or replace, it’s expensive to insure. This could be because the car might be imported and the cost of replacing parts could be quite high. Conversely readily available parts for more commonly driven vehicles, may be cheaper to source. For example, Toyota Corollas are common on the roads and parts are readily available, but a Peugeot 3008 isn’t as common so parts may be harder to find and more expensive.

It may seem surprising, but the cost of your car insurance will vary depending on your postcode in Australia. This is because some areas may have a higher risk of your car being damaged or stolen, and so insurance companies may take this into account when calculating your insurance premium. Your parking situation also plays a part in how car insurance is calculated. For example, cars parked in off-street carports, garages and secure parking bays may carry a lower risk than vehicles parked on streets or other unsecured parking areas.

This is why it’s important to inform your insurance company if your circumstances change, such as if you move to a new house. In some cases, these changes may even result in a lower premium if you move to a neighbourhood with a lower crime rate or a home with a lockable garage.

How you use your car and the purpose you use it for can make a huge difference to how your car insurance is calculated. For example:

• Low-kilometre drivers like retirees and inner-city dwellers may benefit from a cheaper insurance rate, since less time on the road generally means they’re less likely to get into an accident.
• If you use your vehicle for business purposes, you may attract a higher premium based on a higher risk as your car is on the road more often.
• Safe driver or no-claim discounts are incentives (which result in reduced premiums) that are applied if the owner and/or driver hasn’t made an at-fault claim for a set period.
• Your driving record, including any previous insurance claims, licence suspensions or loss of points, may affect your premiums, as this can show your risk as a driver.

When purchasing your car insurance, make sure you disclose all information that’s being asked of you concerning your driving history and claims history. Doing so helps ensure that you’re covered. If you fail to mention something that becomes relevant when you make a claim (like if you’ve made a similar claim before), you might find that your insurer can reject it.

Your policy excess is the amount you pay to your insurer when you make an at-fault car insurance claim. Generally speaking, on comprehensive policies, the higher your excess payment, the lower your premium can be. However, think carefully before setting your policy excess too high, as you don’t want to put yourself in a bind later on if you need to make a claim.

The type of car insurance cover you choose has an enormous impact on your premium. In addition to the mandatory Compulsory Third Party (CTP) insurance, there are a few different types you can take out.

Third Party Property Damage insurance covers you for the cost of repairs, damages and replacements to other people’s property and vehicles if you cause an accident. However, your own vehicle isn’t covered for any damages or losses except in very limited circumstances (like if an uninsured driver damages your car).

Third Party Fire and Theft insurance coverage protects you in a similar way to Third Party Property Damage insurance but also includes cover for your own vehicle for fire damage and theft-related incidents.

Comprehensive car insurance is the highest level of car cover. It covers you for damage to your car (including collision damage, and vandalism) as well as any damage you cause to third parties.

Depending on your insurer and policy, it provides further cover for theft, fire, flood, storm and hail damages, as well as a hire car should your car be stolen.

When you take out a car insurance policy, you may be given the option of insuring your vehicle for an agreed value or market value, which will determine what you’re paid out should your car be written off.

An agreed value is just that: the value that you and your insurer agree on to be paid if your car is damaged beyond repair. This type of insurance generally attracts a higher premium. On the other hand, market value insurance covers your car for what it’s worth in the market at the time of claim compared to similar makes and models in a similar condition.