Understanding Insurance: Factors Affecting Premium Reduction

Insurance costs can be a significant expense, and finding ways to reduce premiums is a priority for many. While it may not always be possible to find cheap insurance, there are several factors that influence when insurance becomes cheaper. Age is a key factor, with insurance costs decreasing as individuals get older and gain more driving experience. Younger drivers are statistically more likely to have accidents and are therefore considered higher-risk, resulting in higher premiums. Insurance costs also tend to decrease when at-fault accidents and traffic violations are no longer part of an individual's record, and loyalty discounts may be earned over time. Additionally, factors such as the type of car, mileage, security features, and add-on services can impact insurance costs. Shopping around and comparing quotes from different providers is crucial to finding cheaper insurance.

Car insurance for young drivers

However, there are ways to reduce the cost of car insurance for young drivers. Here are some tips to secure cheaper insurance for young drivers:

• Add a young driver to a parent's or guardian's policy: This is often the cheapest option, as it is usually much more affordable to add a young driver to an existing policy than to purchase a separate one. In some cases, it may be cheaper for the young driver to get their own policy, especially if the parent owns an expensive sports car.
• Shop around for quotes: It is always worth comparing quotes from multiple insurance companies, as rates can vary significantly.
• Look for discounts: Many insurance providers offer discounts for young drivers, such as good student discounts, safe driving discounts, or student away-at-school discounts.
• Consider a black box policy: Telematics insurance, or a black box policy, monitors a driver's behaviour and rewards good driving with lower premiums. While this can be a great way to save money for safe drivers, it is important to note that premiums may increase if the driver exhibits high-risk behaviour, such as speeding.
• Increase the voluntary excess: Opting to pay a higher voluntary excess can lead to a reduction in the insurance premium. However, it is important to remember that this could result in higher costs if the driver needs to make a claim, as they will need to pay both the voluntary and compulsory excess.
• Reduce annual mileage: Young drivers may be considered lower-risk and receive reduced premiums if they limit their time on the road. Insurance providers often ask about average mileage, as it is a factor used to calculate insurance costs.
• Improve the car's security: Installing an industry-approved alarm or immobiliser may help lower insurance costs.
• Take an advanced driving course: Completing an advanced driving course, such as Pass Plus, can sometimes lead to discounts on car insurance. However, it is important to check with the insurance provider beforehand, as not all companies offer this discount.
• Build a no-claims bonus: Avoiding making claims on insurance can lead to a no-claims bonus or discount, which can result in significant savings over time.
• Choose a cheaper car: The type of car driven can impact insurance costs. Certain models and insurance groups offer lower premiums, so it is worth considering the insurance group of a vehicle before purchasing it.

While these strategies can help reduce the cost of car insurance for young drivers, it is important to remember that rates will still be relatively higher compared to older, more experienced drivers. As young drivers gain more experience and build a safe driving record, their insurance costs will gradually decrease.

Cheaper car models

The car model you choose can have a significant impact on your insurance costs, with some models offering lower premiums than others. Here are some cheaper car models that can help you save on insurance:

Subaru Outback

The Subaru Outback is consistently ranked as one of the cheapest vehicles to insure. With an average annual premium of $1,603, it is 25% lower than the national average of $2,014 per year. The Outback is also a top safety pick, which contributes to its lower insurance costs.

Honda CR-V

The Honda CR-V is another vehicle that is often listed among the cheapest to insure. It has a good safety rating and lower repair costs, making it a favourable choice for insurance companies.

Jeep Wrangler Sport

The Jeep Wrangler Sport is an affordable option for insurance, with a median annual insurance premium. It falls within the top 10 cheapest vehicles to insure, according to some sources.

Toyota RAV4 LE

The Toyota RAV4 LE is another SUV that tends to have lower insurance costs. It has a good safety profile and is not typically a target for car thieves, which can help keep insurance rates down.

Hyundai Tucson SE

The Hyundai Tucson SE is a compact SUV that offers good value for money in terms of insurance. It has a median insurance rate and is generally considered a low-risk vehicle.

Chevrolet Equinox LS

The Chevrolet Equinox LS is another SUV that tends to have lower insurance rates. It has a good safety profile and is not as expensive to repair or replace as some other vehicles, which contributes to its lower insurance costs.

Other Honourable Mentions

Other vehicles that are often mentioned as having lower insurance rates include the Subaru Crosstrek, Subaru Forester, Mazda CX-5 2.5 S Select, Ford Escape Active, and Honda Pilot.

Remember, when choosing a car model, it's essential to consider not just the purchase price but also the long-term costs of ownership, including insurance. Always check which insurance group a car belongs to before purchasing it, as this can significantly impact your insurance premiums.

No-claims bonuses

It's important to note that no-claims bonuses are competitive, and they differ from insurer to insurer. So, it's worth shopping around to find the best deal. Additionally, some insurers offer protected discount policies, which allow customers to make a certain number of claims over a specified period without affecting their no-claims bonus. For example, you may be allowed to make two claims in a three-to-five-year period without losing your discount. However, your premium or excess may still be affected if you make a claim on a protected policy.

Building up a no-claims bonus can be so beneficial that, if you have a minor accident, it's often cheaper to pay for the repairs yourself rather than claiming and losing your bonus. However, it's important to remember that you must always notify your insurance provider of any accident, even if you don't intend to make a claim.

In summary, no-claims bonuses are a great way to reduce the cost of your insurance. By avoiding claims and shopping around for the best deals, you can build up a substantial bonus that will keep your premiums low.

Mileage limits

Insurance companies consider those who drive fewer than 12,000 miles per year as low-mileage drivers. However, some insurers set the threshold for low mileage at 10,000 miles or even 7,500 to 8,000 miles annually.

If you drive less, your insurance provider may view you as a lower risk, which can lead to a reduction in your premium. This is known as a low-mileage discount. The discount amount varies, with some companies offering up to a 20% reduction, while others provide an average discount of 5% or less.

To qualify for a low-mileage discount, it's important to accurately estimate your annual mileage when applying for insurance. Misleading your insurer about your mileage can be considered insurance fraud, and insurers may request mileage checks to verify your claim.

In addition to traditional insurance policies, there are also pay-per-mile insurance options. These policies use a base rate plus a per-mile rate to calculate your premium. This means you only pay for the insurance you need based on your actual mileage. Metromile, Allstate Milewise, and Nationwide Smartmiles are some examples of companies offering pay-per-mile insurance.

Another option to consider is usage-based insurance (UBI) or telematics insurance. These programs monitor your driving behaviour and mileage through an app or a plug-in device. While your mileage is a factor, these programs also take into account other aspects of your driving, such as hard braking and acceleration. Examples of UBI programs include Progressive Snapshot, State Farm Drive Safe & Save, and Liberty Mutual RightTrack.

By choosing the right insurance option and maintaining a low annual mileage, you can significantly reduce your car insurance costs.

Loyalty discounts

One example of a loyalty discount program is offered by NRMA Insurance. Their loyalty discount is based on two main factors: the number of consecutive years a customer has been with them, and the number of eligible policies they have. This means that the longer you stay with NRMA Insurance and the more policies you have with them, the higher your loyalty discount could be. For instance, having a home policy and a boat policy in your name, as well as two car policies in your business name, could result in a substantial loyalty discount.

It is important to note that loyalty discounts may not be offered in all states or territories, and there could be certain policies that are ineligible for the discount. Additionally, some insurance companies may discontinue their loyalty discount programs or make changes to their eligibility criteria and discount amounts. Therefore, it is always a good idea to review the specific terms and conditions of your insurance provider's loyalty discount program.

While loyalty discounts can provide significant savings, it is still important to regularly review your insurance policy and compare it with other providers. Insurance rates can vary, and it is possible to find more affordable options or additional discounts by shopping around. By comparing prices and exploring different insurance companies, you may discover even greater savings or benefits that meet your specific needs.

In conclusion, loyalty discounts can be a great way to reduce insurance costs for those who have been loyal customers of a company for several years. However, it is important to stay informed about any changes to the discount program and to periodically compare insurance rates to ensure you are getting the best deal possible.

Frequently asked questions