How do I calculate what should be charged as an insurance premium?
Suppose you own a car valued at $40,000. You decide to buy insurance to protect yourself against loss due to accidental damage. From past experience it is known that in a given year a car of this type may be totally destroyed with probability .005. The car may also suffer damages of $10,000, $20,000 with probabilities .1 and .01, respectively. Ignoring all other partial losses, what premium should the insurance company charge you for a yearly policy in order to break even?
Using excel
insurers will insure a vehicle to be repaired at actual cash value, to get an idea of a cars value, you can get one at kbb.com, but there are so many other factors involved in working out a premium, where u live, how many years driving, other drivers etc so best thing to do is to go to an insurance comparison website and compare rates
Well, there are about 15 major factors that go into each quote. The rating books I’ve seen, are typically 80 to 100 pages. Each company has their own rates, which are on file with the state insurance department.
It’s practically impossible to set up a simple excel worksheet to calculate this, without ALL the other factors
The amount of the vehicle value is only one tiny portion of the factors that go into rating the person driving it. First, a consumer rating factor is calculated including your credit (people who have high debt balances and fail to pay are more likely to file a claim), then a driving record is run, your age factors in a great deal, the length of time you’ve been driving, whether you’re married and/or have children, where the vehicle is driven and how often…..I could go on for hours.
Basically, what risk do you pose driving this particular vehicle?