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How Cars are Rated and How it Affects Insurance Premiums

August 14, 2012

Although most people are well aware of how their driving record affects their insurance premiums, many don’t realize just how much their car affects the rates as well. Everything about your car, including the year, make, and model, affects the rate. In addition to that, some things you may not even know about your car can have an impact on car insurance premiums. These factors are important to understand especially when shopping around for a new car this year.

Year, Make, and Model

The age of your car has a lot to do with your insurance premiums. That is because the older you car gets, the more value it loses. The less valuable your car, the less expensive it may be to repair or replace, making it cheaper to insure because the risk to the insurance company of paying out a large claim is reduced. Of course, each car depreciates at a different rate, and each car starts with a different value, so the impact on rates varies across different vehicles. But in some cases an older car may be cheaper to insure.

The make and model of your car have a big impact on rates as well. High-end luxury cars usually cost more to insure because they are more valuable to begin with. The cost of parts, repairs, or even replacement in the event of a total lost can be very expensive for the insurance company. Thus they will charge a higher premium.

The model also has an effect on insurance rates. Two cars that are from the same manufacturer but are different models can have different rates. In fact, even the difference between two cars with different trim levels can make a difference. A sedan, for example, may cost less to insure than the coupe version of the same car. This is because coupes could be considered sportier and statistically at a higher risk of an accident.

The Risk of Theft

Insurance companies use statistics on the frequency of theft for every car on the market to help them determine how high the odds are that your car will be stolen. Certain cars consistently make the most-stolen lists, and these cars will therefore cost more to insure. The insurance company is at a higher risk of having to pay out on a car that is likely to be stolen.

While anti-theft devices can help to reduce the risk of theft and thus bring down your insurance rates, a car that is commonly stolen will continue to carry a higher premium. This is just one of the many statistics that a car insurance company uses to determine rates, and one of the things that is important to think about when car shopping.

Value and Risk

Cars are rated on two main factors, which are derived from all of the information about year, make, model, and theft statistics. What it all comes down to is the value of your car, and the risk of theft or accidents.

The value of your car will mainly affect the optional portions of your insurance, such as the collision portion; although there is some impact on the other areas of your insurance. While dropping collision coverage could reduce your rates, it is generally not a very good idea since the high value of your car would make it hard for you to pay for damage or replacement.

The risk factors of theft and accidents will impact a variety of areas in your car insurance rates. Of course theft statistics will impact comprehensive costs, since theft is the most common source of claims against comprehensive coverage. Accident statistics will impact mainly the cost of your liability & accident benefits insurance, although a big factor in that area is your driving record and experience.

Insurance companies use a complex system of statistics and their own value system to come up with the premiums for each portion of your insurance coverage. .

Of course, the car itself is only part of the puzzle, so two people with the exact same vehicle can find themselves paying very different rates. Insurance premiums are calculated using many different factors. The car itself is one of the factors that are within a driver’s control, however, and taking the time to get some quotes on various models before you buy can help you to save a lot of money in the long run. Two similar cars may have very different rates, so get car insurance quotes when you are car shopping to help calculate the total cost of ownership and avoid any surprises after you buy.

  • fulanomengano

    In some countries, even the colour of the car (red, yellow and black are considered sportier) have an impact on your insurance rate. I’m assuming this is not the case in Canada since I’ve never been asked for the color of my car when requesting a quote. Am I assuming correctly?

  • http://www.insurancehotline.com/ InsuranceHotline.com


    You are correct, the colour of your vehicle does not effect your rate – that is an insurance myth!

  • marpy

    As I understand it, one of the problems with insurance in Canada (specifically Ontario) is fraud and the fact that the industry and government do not deal with it well. They have come to the conclusion that it is easier to pay and pass the costs on to the consumer in higher premiums and reduced benefits. This is sad as some of the states south of the boarder have decided to fight the fraud and have made good inroads in doing so.

  • Peter D

    Vehicle safety rating is also a factor. I was surprised that when I purchased insurance for my Dodge Challenger and it was cheaper than my wife’s Pontiac Vibe. Not that I was complaining but was curious as to how this was possible. My broker told me it was due to the Challenger actually being a safer vehicle than the Vibe.

  • Brokergirl

    The age of the vehicle impacts the cost of physical damage coverage like collision, comprehensive or all perils. The cost for the liability and accident benefits coverage doesn’t change as much when a car ages. In fact, older vehicles may have higher accident benefits costs due to having fewer safety features.