Factors That Affect The Premium of Your Car InsuranceMarch 21, 2023
When it comes to owning a car, it's not just about the thrill of the open road and the freedom of the ride, but it's also about being prepared for the unexpected. And, one of the most important shields you need is car insurance. .
When you boil car insurance down to its most basic tenets, it essentially is a contract between you and the insurance company. The insurance company gives you coverage, you pay premiums in return.
So, how are these premiums calculated? What are the factors that determine how much you have to pay? Let's see!
Factors that Affect the Premium of Your Car Insurance
Many factors influence the premium calculations for your car insurance. Let’s discuss each in detail -
👉 The Cost of Your Car
The cost of your car is one of the main factors that affect the premium of your car insurance. The value of your car is used to determine your car insurance premium rate, and it varies depending on the range the car price falls into.
👉 Cars valued at more than AED 300,000 may be subject to a 2.75% premium rate.
👉 Cars valued between AED 100,000 and AED 300,000 may be subject to a 3% premium rate.
👉 Cars valued at less than AED 100,000 may be subject to a 3.5% premium rate.
👉 Your Age
Your age is a vital factor in calculating the premium for your car insurance. Generally, young drivers under the age of 25 are considered to be at a higher risk for accidents, and as a result, their insurance premiums may be higher.
This is because studies have shown that young drivers tend to engage in more reckless driving behaviour as they are sprightly and adventurous.
👉 Type of Coverage
Another important factor that affects your premiums payable is the type of coverage that you choose. For instance,a fully comprehensive car insurance policy will typically be more expensive than a third-party liability policy because it offers a wider range of coverage.
This is because fully comprehensive insurance policies provide coverage for damages to you and your vehicle, as well as third-party property and injuries.
👉Types and Features of Your Car
If you own an expensive car, your car insurance premium may be higher than that of a standard car. High-end cars often have more expensive spare parts and require higher levels of maintenance, which can make them more expensive to insure. Additionally,
High-end cars are typically more valuable, which can also increase the premium.
Your car insurance premium can also be affected by your driving history. If you have a history of violating traffic rules or have made claims in the past
insurance companies may consider you to be a high-risk driver. This can result in higher premium rates.
Insurance companies use your driving history as a way to assess the likelihood of you getting into an accident or making a claim in the future. This is why drivers with a clean record of no claims and no traffic violations may be offered lower premium rates.
Say Gowtham and Harish are best friends who bought the same car at the same time. Gowtham is a well-disciplined driver who always abides by traffic rules and has never been in an accident.
Harish, on the other hand, has been ticketed many times for reckless driving and caused multiple accidents on the road.
If they apply for car insurance, Gowtham will receive insurance at lower premiums than Harish as he is considered “less risky” by insurance companies.
👉Deductible or Excess
A Deductible, also known as the excess amount, is the amount that you will have to pay from your pocket before the insurance company steps in to pay. Generally, the higher the deductible, the lower the premium will be.
This is because choosing a higher deductible means that you are taking on more financial responsibility for potential claims, which reduces the risk for the insurance company.
Insurance companies often offer discounts to policyholders who meet certain criteria, such as having a clean driving record or no claims in the preceding year.
These discounts can help to reduce the premium of your car insurance. You should ask your insurer about any such discounts and make the best use of them to help keep your premiums low.
Now that we've discussed the factors that can affect your car insurance premium, let's take a look at some ways in which you can reduce your premiums payable.
Ways to Reduce Your Car Insurance Premium
You can follow these methods to lower your car insurance premiums –
👉 Opting for Higher Excess or Deductibles
Choosing a higher deductible can lower your premium, but it also means that you will be responsible for paying a larger portion of any claim you make. You will need to pay the deductible out of your pocket at the time of a claim, so it's important to make sure you can afford to pay it. So, consider your own financial situation and risk tolerance when deciding on the deductibles for your policy.
Suppose you have taken a deductible of AED 500 - which considerably reduces your premiums. In this scenario, if you meet with an accident that leads to a bill amount of AED 6000, you will have to pay AED 500 from your pockets and the insurance company will pay the remaining amount.
👉 Driving Cautiously
As informed earlier, your driving history and claims history can play a significant role in determining your insurance premium. If you have a history of accidents or multiple claims, you will be considered a higher risk to insure, and thus, will be relatively charged a higher premium.
It is also important to keep in mind the black points system in UAE, which assigns points to drivers' licences for traffic violations. Accumulating a higher number of black points will result in higher premiums. It is important to be aware of the traffic rules and drive safely to keep your insurance premium low.
👉Comparing Different Car Insurance Policies
You should compare different insurance quotes when selecting a policy for your car. Don't just accept the first quote you see, as different insurance companies may offer different types of coverage at different prices.
It's important to review each quote carefully and compare the coverage options offered to ensure that you are getting the best policy for your needs and budget. Make sure to compare the coverage, exclusion, deductibles, and services of insurers so you can make an informed decision.
👉Selecting the Right Cover that Fits Your Requirements
A third-party liability policy is generally less expensive than a comprehensive policy, as it provides coverage for damage or injuries you may cause to third parties or their properties while driving your car, but does not cover damages or loss caused to your car.
You can choose a third-party liability policy if your car is old, infrequently driven, or intended to be sold soon. On the other hand, a comprehensive policy provides broader coverage, including damage to you and your car and third-party liability coverage.
It also covers other types of damage such as fire, theft, and natural disasters. You can choose a comprehensive car insurance policy if you have a new car or if you drive frequently.
👉Choosing Add-ons Wisely
Most insurance companies include certain add-ons as part of the policies they offer, while others may charge extra for them. It's important to carefully evaluate your needs and only choose the add-ons that will be of benefit to you, as they can increase your insurance premium.
👉 Ahmed frequently travels to Oman for business purposes. In such a case, an Oman Extension would be useful to him as it will provide him coverage while driving in Oman. On the other hand, Aisha has never travelled to Oman and doesn’t plan to in the future as well. So, the Oman Extension would be unnecessary for her and will just increase her premiums
👉Installing Anti-theft Devices In Your Car
Insurers may give you discounts on your car insurance premium if you have an anti-theft device in your car. This is because such devices reduce the risk of theft and can lower the chances of needing to file a claim.
Note:You should check with your insurance provider to see if they offer any discounts for installing anti-theft devices in your car.
Car insurance premiums can be influenced by factors such as your age, driving history, location, type of vehicle, coverage, etc. Keeping a good driving record and comparing different policies can help you find a policy that meets your needs and fits your budget.