Many factors affect your car insurance premium – driver-related factors as well as car-related factors.
Vehicle value is an important element in your insurance premium calculation. If you’ve ever wondered how the value of your car impacts your insurance quote, here’s a simple explanation.
Vehicle value: A significant factor or not?
Insurers look at a long list of risk factors when computing your car insurance premium. The value of your vehicle may have a big or small impact on your premium depending on how other factors stack up relative to it. Here’s an example:
If driver A is young and has been involved in driving misdemeanors in the past, the value of his car alone will not have a huge impact on his premium compared to his age and driving history.
If driver B is in his late thirties, and has been a safe driver with barely any claims made in the past, the value of his car is likely to play a bigger role in determining what he pays towards his car insurance premium.
Low-value vs. high-value cars
Just because your car was bought cheap or is not worth much after years of usage, does not mean it will be cheaper to insure. Why so? Insurance for lower-value cars may cost more than you think because there may be a higher risk of the vehicle not functioning properly and being involved in an accident. It may even be more difficult to procure spare parts for repairs of older cars.
When valuing a car, quite a lot of factors impact the value assigned to it by the insurer. Insurance companies will look at the age of the vehicle, make, model, transmission type, fuel type, engine size and other risk factors. So an expensive family SUV may not be as expensive to insure as a relatively cheaper muscle car.
“My car depreciates every year, but why does my premium go up?”
It is common knowledge that the value of your car depreciates by up to 20 percent the moment it leaves the showroom. And of course, its value will keep depreciating with every passing year. Why then does your insurance premium go up every year?
These are some of the key reasons why the cost of insurance does not go down like the value of your car:
- Repair costs – It will cost the same to repair a 2017 model of a car, as its latest 2020 model.
- Inflation – The cost of repairing your car will go up as prices go up year after year.
- Driving history – If you made a claim this year, it will cost you more to insure your car in the next one.
Be wary of overvaluing your car
If you overvalue your car at the time of buying an insurance policy, you will automatically pay a higher premium. But if your car is involved in an accident, insurance companies will take into account its current market value. This is of particular significance in case of a total loss, where the insurer will only pay out the market value of the car. So you would have simply wasted money paying high premiums for no benefit at all.
Souqalmal now offers you a safe and efficient way of finding an insurance policy for yourself. We connect you directly with multiple insurance providers. We also equip you with everything you need to know and what you need to ask before buying your insurance policy. From making you aware of the most common insurance scams out there, to offering you tips on how to compare your options and get the best price, our team is always in your corner.