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What factors determine your car insurance premium? | RateCity

Vidhu Bajaj avatar
Vidhu Bajaj
- 6 min read
What factors determine your car insurance premium? | RateCity

Car insurance rates are heavily personalised. Though it may seem surprising, the same insurer may charge you and your neighbour differently for the same level of cover on the same car model. That's because the level of risk the insurer takes in providing the same level of cover to both of you is likely to be different. 

For instance, younger drivers are generally considered at a higher risk of being involved in an accident. So, if you or your neighbour are under 25, you can expect to be charged extra. Besides your age, even your gender, the colour of your car and the distance you travel each day could affect your insurance premium. Here's how some of these factors could impact your insurance costs:

Your age and gender

Statistics show that young male drivers under the age of 25 are more likely to be involved in road accidents. As a result, male drivers aged 18-25 usually pay among the highest rates for car insurance. 

However, once you cross 25, insurers generally start seeing you as less of an accident risk, and your insurance premiums should start trending downwards. However, this may not be true for everyone, as age is only one factor impacting your insurance premium. 

Younger males are also likely to pay more for their car insurance than younger females. Statistically, men are at greater risk of a crash than women due to increased risk-taking behaviour and poor risk perception in some cases. Therefore, some insurers increase the premium rates for males, especially those in the younger age groups, because they tend to cost them more at the time of claim. 

The colour of your car

The colour of your car could affect the amount of money you pay to insure it. A report from the Monash University Accident Research Centre in 2007 pointed out that the colour of a car could be associated with a greater risk of a crash. According to the report, cars painted in colours on the lower end of the visibility index, such as black, blue, grey, green, or red, have higher chances of meeting with an accident compared to white vehicles. 

Following the results of the study, some insurers may charge you less for insuring a white car than one painted in  a darker shade. Colours on the higher end of the visibility spectrum, like orange or yellow, may also be relatively cheaper to insure. On the other hand, if your car is painted black (or any other dark colour), you are likely to pay more for your insurance cover.

How colour impacts your insurance premium also depends on the insurer you choose. Some insurers do not ask for the colour of your car when providing a quote, as safety features on newer models are believed to neutralise the impact of a car's colour on its crash risk.

Your driving history

Your driving history and previous car insurance claims affect the premium you pay on your car insurance policy. Generally, insurers increase your car premium by a small percentage when you make a claim against your insurance policy above a specific amount for an accident caused by you.

But what happens to your premium if you had to make an insurance claim for an accident that wasn't your fault? This could be the case if your car was damaged by a severe weather event, broken into, or when you are unable to take down the details of the at-fault driver because they fled the accident scene.

In situations like these, you'll need to make a claim on your insurance policy even when you are not at fault. Unfortunately, such no fault car insurance claims could also affect your premium at times. For instance, if your car was damaged due to hail or being broken into, the insurer may decide your parking spot isn't safe, or worse, the area where you live has become dangerous, and decide to increase your insurance premium. 

The number of kilometres you drive

A rarely used car is less likely to be in an incident than a car used to commute frequently. Therefore, the distance you drive is an important auto insurance rating factor that insurers consider when deciding your premium. 

Naturally, the more kilometres you clock on your car in a specified period, the higher the insurance premium you will pay. However, if you haven’t been travelling much lately, reducing the number of kilometres on your insurance policy could potentially shave off some money from your premium. 

If you rarely get behind the wheel, you may find it useful to consider a pay-as-you-go car insurance policy that lets you pay for the kilometres you think you'll be driving in a year.

Where you stay and how you park your car

Living in an area with a higher crime rate could affect your insurance premiums. Different postcodes in the country are associated with varying levels of crime. Consequently, there's a higher risk in some areas of your car being damaged or stolen, and many insurance companies consider this factor when deciding your insurance premium.

In addition to where you live, your insurance premium could also be affected by where you park your car. A car parked in a garage or a secure parking bay, is believed to carry a lower risk than a car parked on the street. So parking your vehicle inside a locked garage or under an off-street carport might help you reduce your insurance premium.

Compare insurance online to secure a better deal

Understanding the factors that impact your car insurance premium can help you reduce your insurance costs to an extent. For instance, carpooling to the office with your co-workers could reduce the number of kilometres you drive, helping you save on fuel costs and a reduced insurance premium. However, there are also a few things you may not be able to change, like your age or even the place where you live. But that doesn't mean you can’t clock some savings on your car insurance premium by being savvy.

One of the simplest ways to reduce your insurance premium is by comparing your car insurance options online to see if you could get a better deal. Comparing deals from different insurers will help you determine what others charge for the features and options included in your policy. You can also compare additional features and discounts offered by different providers to choose a policy that is not only cheaper but also suits you well.


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Product database updated 15 Jun, 2024

This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.