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How do Insurance Companies Work out their Premiums?
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Author Topic: How do Insurance Companies Work out their Premiums?  (Read 24691 times)
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« on: 15, September, 2010, 19:01: »

How do Insurance Companies Work out their Premiums?

When discussing insurance premiums with your friends, neighbors, family, and coworkers, it becomes clear that nearly everyone pays different rates. Because insurance costs not only vary among individuals, but also among insurance providers, it is important to know how these premiums are set so that you can learn what you can do to reduce your own insurance costs.

There are a number of factors insurance companies take into account when they work out their premiums. These factors are all included in a category referred to as ‘risk.’ Risk means the likelihood a policy holder will make a claim which will result in a pay out. The higher an individual is deemed a risk, the more they will have to pay in premiums. Understanding ‘risk’ and how insurance providers determine risk is essential to understanding why one pays a certain premium.

To understand how premiums are determined, it is necessary to discuss different types of insurance. For instance, when providing car insurance, insurance companies look at statistics that will indicate the likelihood a driver will make a claim. For instance, age, gender, credit history, car make, model, year, risk of theft, accident history of a particular type of car, and the safety rating of the car, are all assessed to determine the premium. Companies will evaluate all of these factors when insuring drivers in order to ensure the premiums are high enough to help offset a claim. With all of the gathered data, they can make good estimates of the cost of loss within a specific population. The companies will then calculate a total amount they will have to pay out if they insure a specific number of people in a specific location. Some companies will divide the total equally so the good drivers are subsidizing the bad drivers, however, most companies will adjust an individual premium amount based on their level of risk allowing policy holders to pay a lower amount if they are categorized as a low risk driver.

All of the research that insurance companies rely on for specific policies comes from a wide variety of local and nationwide research companies. The research allows them to create specific criteria they can refer to when working out an individual’s premium that will be designed to offset claim costs. When searching for a particular insurance policy, in order to get the best possible premium that proves the best coverage, it is important to understand the criteria used to set a policy and learn what you can do to lower your risk which will increase your chances of purchasing affordable policy. Also shop around; there are quite a few car insurance companies in Australia, Allianz, NRMA, Bingle, just to name a few. Every company has a slightly different way of assessing risk, so it pays to get a few quotes.

A guide to saving money on your car insurance premiums

The biggest cost that motorists face each year is insuring their vehicle. In the current economic climate everyone is trying to save money but cheap car insurance can often be hard to find. This article will explore ways in which you make changes and cut back on your monthly premiums.

In order to make changes it is important to be aware of how insurance companies work out the cost of your premiums. How much you pay is typically based on how much the car is worth, the risk of theft with the particular model and the safety record of the vehicle. With this in mind are there any changes you can make? Any additional security that you have in place or can put in place will work in your favour such as quality locks, security codes on windows and alarms. If you do not have a good safety record you could consider taking an advanced driving course which is designed to give you a wider experience of driving, for example in wet conditions. If you happen to have any no claim bonuses this will also work in your favour and is important to mention. If you happen to have a younger person as a named driver on your policy this could work against you. If you are in a position to remove a younger driver from your policy you could save up to 10% on your car insurance premiums.

Another thing worth mentioning is excess. Excess is the amount you have to pay towards a claim if and when you need to make one. Before you take out a policy look at the amount of excess that you will be expected to pay. If you offer to pay the insurance company more excess than expected there is a good chance your premiums will be reduced which could save you money in the long run.  In addition to this if you are in a position to pay all of your premiums for in advance you could look to reduce the amount you pay by 30%. Paying in advance is often favoured by insurance companies over paying monthly. 

One of the most effective ways to get cheap car insurance is to get multiple quotes from companies by shopping around. As little as one in five drivers take the time to compare car insurance as they are under the impression that it will be difficult and time consuming. With the help of on line price comparison sites it could not be easier to get a quote. is one of the leading price comparison sites and helps millions of people to get cheap car insurance. Why not visit their site today to see how much you could save.

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