Auto insurance is a requirement for anyone driving on public roadways. The amount of money that you pay for your car insurance policy can vary based on a number of factors.
One of the most important factors when it comes to determining your premiums is the method your insurance company uses to calculate its rates.
Learn more about the top three methods in use by insurance companies today so that you will know which type of calculation you want to include in your auto insurance package in the future.
1. Traditional Calculations
You are probably familiar with the traditional method for calculating auto insurance premiums. Insurance companies have been using this method for a number of years.
The make and model of your vehicle, the type of driving that you do, and the areas in which you live and work are used to determine your level of risk as an insurance customer. Once your risk has been assessed, your insurance premiums are calculated based on that risk.
For anyone living in a relatively low-crime area, a traditional calculation approach can result in an affordable policy.
2. Usage-Based Calculations
Another method used by insurance companies to help assign premium values to their policies is the usage-based approach.
Usage-based calculations require that the insurance company track how much you utilize your vehicle over time. These policies typically have a predetermined base premium assigned to them.
At the end of each month, the number of miles that you have driven will be logged by your agent. The base rate included in your auto insurance package will then be adjusted up or down, depending on your usage.
For drivers who don't spend a lot of time behind the wheel, a usage-based premium can help save money over time.
3. Behavior-Based Calculations
More insurance agencies are starting to offer auto policies whose rates are based on driving behavior.
A behavior-based policy will require you to install a device in your vehicle on a temporary basis. The device collects data regarding your driving habits (how quickly you accelerate and stop, how smoothly you turn, whether or not you use your turn signal lights, etc.) and reports back to the insurance company.
The data is compiled and analyzed, which lets your insurance agent determine your risk level. Good drivers receive auto policies with lower premiums, while high-risk drivers are required to pay a higher premium based on their driving behavior.