Does the price of your car affect your insurance?

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Important facts to know...

  • The price of your vehicle doesn’t have a direct effect on the premiums that you pay for your insurance
  • Many companies will assign vehicle classification codes that all dictate how much you will be charged for coverages
  • The car’s average repair costs and the average amount of damage the car causes to other vehicles will be used
  • If your vehicle causes a high amount of damage to other cars or bodily injury, the liability premiums will be higher
  • When you own a classic or antique vehicle, you’ll carry insurance that protects the car for a stated amount

When you purchase a car, the purchase price can have a major impact on your finances.

Since the final sales price will dictate how much you’ll pay each month on your loan, you’ll need to use a loan calculator and see how much you’ll pay each month for a specific amount of financing.

Once you set your budget and you know your limits, you’ll be able to shop for a realistic vehicle that you can afford.

Enter your zip code into our free comparison tool above to find the best rate for the coverage you’re looking for.

You shouldn’t just factor in loan costs when you’re setting your budget. Car ownership comes with a lot of other expenses.

One of the biggest expenses, aside from financing, is buying auto insurance. It’s a continuous expense that’s difficult to budget for because the cost can change regularly.

If you’re pricing the cost of insurance, here’s how your car’s price is factored in:

Your Vehicle Will Affect Your Premiums

Your choice of vehicle is definitely going to affect how much you’ll pay when you’re buying a standard insurance policy.

Since you’re buying insurance on a specific car, the insurer must consider how the vehicle type will affect how often you file claims and how much claims are settled for.

An ISO vehicle classification code is a tool that’s used by actuaries and personal lines underwriters when setting rates and underwriting policies for risk. Each vehicle is assigned a different code.

The car’s year, make, model and submodel can all affect the car’s code and risk profile. The higher the class code, the higher the vehicle’s premium.

Every vehicle is given two different ISO codes. One of the codes that are assigned to the vehicle is used to help rate liability premiums by using vehicle-specific information.

The other code is used to determine how much physical damage premiums should cost. If you’re carrying liability only, you won’t be concerned with the physical damage code.

Who decides which vehicles get riskier codes than others?

Insurance companies don’t set their own classification codes. It would take a lot of actuarial research and a huge investment of capital to do the classifications on their own.

Instead, the carriers will use the data and the coding system that was developed by a third-party data analytics company.

While there are several insurance solutions companies that do various types of services for insurers, one of the more popular data analytics companies that work in the property and casualty market is Verisk.

Verisk Analytics is a leader in the industry that uses advanced technology to collect and analyze billions of records so that they can offer support solutions in insurance rating and other aspects of the marketplace.

Vehicle Price Can Have an Impact on Physical Damage ISO Symbols

The data analyst group that develops symbols and coding systems will use a lot of information that is believed to impact the amount of an insurance claim when rating cars.

If you’re confused as to why the ISO symbol used on your car has bumped up your physical damage rates so high, you need to know what different factors are used to set a symbol.

When a car is first released to the consumer market, the analytics company has no choice but to use a preliminary symbol that’s based solely on the car’s MSRP.

It’s not until data on actual loss experience can be examined to determine which symbols are more appropriate in the following years. Some of the various data that’s collected and used to adjust the symbol includes:

  • The claims rate directly related to how often the vehicle is stolen or vandalized
  • The claims rate showing that some vehicles are involved in more collisions than others
  • Data showing that a specific model is more attractive to riskier drivers in a high-risk class
  • The claims data showing that vehicles in the same price range tend to cost more to repair because of labor or parts

Why do your premiums on new cars often change?

If you buy a brand new car, your premiums for your physical damage coverage will be completely based on the car’s price, but the premiums can change the next term.

One of the dangers of buying a brand new car is that you never know what directions your premiums will move in within the next year or two.

Once all of the data related to the rating information above is collected, the ISO risk rating code will be moved either upwards or downwards.

It’s common for inexpensive cars that are attractive to teens and college students to carry higher physical damage rates. It’s also common for specific models to cost more to repair, which leads to a higher rate over time. It all depends on what the data says over time.

Price Does Not Affect Liability Premiums

The liability vehicle rating symbol will dictate how much you’ll have to pay for Bodily Injury and Property Damage.

Instead of using a vehicle’s price, the insurer will use other information that assesses which types of vehicles are more likely to have higher cost liability and medical payments losses. Some information assessed includes:

  • Manufacturer
  • Chassis type
  • Horsepower
  • Weight
  • Height
  • Width
  • Wheelbase

Price Has a Larger Impact on Classic Car Premiums

When you’re buying standard car insurance, the price of the car only really impacts premiums while the car is still new.

The value of the car has more of an impact on premiums if you’re buying classic car insurance because you state a value, support the value with an appraisal, and your premiums are determinant on the value that’s stated.

Price does affect your car insurance premiums but not as much as you’d assume. Now that you know how premiums are rated, you can do your research on used cars before buying them.

If you want to get quotes on a specific car, use our online rating tool and you can instantly price shop the market.

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