Car insurance premiums are made up of many different parts. The cost of liability, comprehensive and collision coverages are calculated separately from one another. Here’s how comprehensive and collision insurance is priced. The insurance company actuaries are tasked with calculating the probability that you will get into a car accident. Using an algorithm based on that probability, a premium is determined. The insurance company then evenly spreads the premium (the risk) over the expected life of the car. So when the car is new, you are getting a really good deal on your insurance premium. As the car gets older, the insurance company is getting a better deal. This is why DSI agents advise our customers to assess whether it is worth keeping collision coverage on an older car.
Every year as a car gets older, the insurance company will go back to the actuaries to see if their original algorithm was correct. If it was, then you won’t see much change in the premium. If they weren’t accurate in their predictions, you will see a rate increase. However, car repair costs continue to rise. This drives up the cost to insurance companies. and they pass that cost on to the consumer in order to stay financially stable.