Ever wondered how your car insurance premium is calculated?
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How your insurance premium is calculated depends on various factors. Some of the factors can be determined or selected by you, but unfortunately most of the factors such as your age, where you live or your marital status are out of your immediate control.
Gone are the days where only a few basic parameters determined the rate you pay. Insurance companies has come a long way and nowadays, the criteria for calculating insurance premiums has changed significantly and includes several complex parameters that are being considered to determine the premium rates. In this article we explain the main factors that influence the insurance premium that you pay for your car.
The Value of the Car
Insurance companies usually covers vehicles at their ‘Market value’, except if requested or stated otherwise. The ‘market value’ of a car revers to the average between the trade-in and retail price.
The trade price is the price a second hand auto dealer will pay for a used vehicle whereas the ‘retail price’ refers to is the value that the car ‘retails’ for if you were to buy it from an auto dealer. The ‘trade price’ off a vehicle is basically the lowest value of a used car, and the ‘retail price’ can be seen as the highest valuation of a used car.
Market value is calculated with this formula: Market value = (Trade value + Retail value) / 2
The premium is then calculated based on the car’s market value, which takes into account the make and model, age, condition of the vehicle and the resale value, and the value of all additional accessories.