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Basis of Premium Charges

In many countries, it is compulsory to purchase auto insurance before driving on public roads. In the United States, penalties for NOT purchasing auto insurance vary by state, but often involve a substantial fine, license and/or registration suspension or revocation, as well as possible jail time in some states. Depending on the jurisdiction, the insurance premium can be either mandated by the government or determined by the insurance company in accordance to a framework of regulations set by the government. Often, the insurer will have more freedom to set the price on physical damage coverages than on mandatory liability coverages.

When the premium is not mandated by the government, it is usually derived from the calculations of certain factors. The premium can vary depending on many factors that are believed to have an impact on the expected cost of claims. Those factors can include the type of car, coverages selected, the profile of the driver and the usage of the car. Men typically drive more miles per year than women do, and have a proportionally higher accident involvement at all ages. Insurance companies cite women's lower accident involvement in keeping the youth surcharge lower for young women drivers than for the males, but adult rates are generally not separated by male/female.

Teen drivers who have no driving record will have a higher car insurance premium. However, young drivers are often offered discounts if they take further drivers training on recognized courses or good grades.

Reasonable estimation of the average annual distance expected to be driven is a factor that determines the basis of your premium. This is seen as a discount benefit for drivers who drive their cars infrequently but has no actuarial value since it is unverified.

In 1998 Progressive Insurance company started a pilot program in Texas, United States in which volunteers installed a GPS-based devise called an Autograph in exchange for a discount. The device tracked their driving behavior and reported the results via cell phone to the company. Policy holders were reportedly more upset about having to pay for the expensive device than they were over privacy concerns. Therefore, the program has not seen much success, although the idea is now patented by Progressive.

Regardless of what premium you have to pay, it is important to realize that insurance is not a one-size fits all products. Different drivers need different types of insurance and levels of coverage. Increasing your deductibles and the amounts of a particular coverage are easy ways to save, but be sure to identify what level of risk you are comfortable with. Some people hate taking chances while others can't afford to. So take advantage of every discount and just because insurance can be costly doesn't mean that there aren't ways to save.