Auto Insurance Rating 101
How are auto insurance rates calculated? Factors such as your age, education, occupation, location, type of car, tickets and accidents, possibly credit rating, and more can drive your rates up or down.
What is the average cost of auto insurance? (how is rate calculated)
Insurance companies take into consideration all sorts of factors to help decide how much you’re going to pay for your insurance, such as:
- Type of Car
- Credit (depending on the state)
Why is car insurance expensive? (items that negatively impact rate)
Insurance can be expensive, but cheaper doesn’t always mean better! If you’re paying more for insurance, trust me that you’re not the only one that feels that way, but there is usually a reason why your price may be higher than your friends and family.
- Tickets - We’ve all had that nervous moment where we didn’t realize we were going over the speed limit and we speed past a police officer without realizing, only to look back and hope we don’t see the lights start flashing. We’re not always that lucky though - the more times an insurance company sees this on your record, the more you can expect to see your premiums go up. So if you’re wanting to save some money - ease up on the pedal and put the phone away while you’re driving. In fact, many companies these days have driving programs called telematics, which track your driving behavior and can reward you for good driving behavior
- Claims - I’m sure you can relate to a time you got a little too close for comfort to the car in front of you, narrowly missing the dreaded fender bender. Well, if and when that does happen, what happens to your insurance if you file a claim? Claims are a pretty big rating factor that insurance companies are going to consider that could make your rate go up. Keep that in mind before filing a claim - If it’s only a few hundred dollars in damage, how is that going to compare to your deductible and is it worth filing if you’re still going to pay for it in the long run in your premium? Claims typically stay on your driving history for anywhere from 3-5 years, so think twice before filing any claim that is close to your deductible, and always consult with your agent.
- Age - We were all young once, so we should remember a time when we weren’t perfect drivers. Having young (especially teenage) drivers on the policy is sure to make your rates go up.
How does where I live impact my insurance rate?
When you’re driving around your city, you probably notice different things than your insurance company does. You’re thinking about where your favorite restaurant is, what’s playing at the local theater, or maybe how bad traffic is on the way home. Well, maybe your insurance company cares about that last one too. Truth is, there’s more than meets the eye on how your area can affect your auto insurance
- City vs Rural - If you think about it, there’s probably no surprise that, if you live in the city, you’ll likely pay more than your cousin does who lives in the country. A more densely populated area → more drivers → traffic → more claims = more premium for you. Is this why everyone says they’re going to retire to the country? Maybe.
- Weather and Geography - This one makes sense when you think about it. Whether it’s hurricanes in Florida, icy roads up in Michigan, or tornados in Oklahoma, the type of weather where you live can factor into the premiums you pay.
How does my age impact my rate?
Age is just a number right? Well, that number tells insurance carriers a lot of data they’re going to use to help determine your rate. As you get older, or should we say more “experienced”, you’ll generally see rates start to go down. One of the common myths you may have heard about insurance is how your rates get cheaper when you’re 25. It’s not always true - what’s really happening is you’ve gained driving (and life) experience and around this age, you’ve also started to establish more credit which all works in your favor with insurance companies.
As we get older, we also build more credit history that insurance companies may take into consideration (if your state’s laws allow them to). With a higher credit score we’re seen as being more financially responsible which typically means you get better rates! It does work both ways so if you have a lower score you may end up paying more on your insurance premiums. Don’t think that shopping your insurance will hurt your credit. Even though it’s taken into consideration, it’s what is called a “soft pull” and won’t actually show up on your credit report. It’s very similar to how companies like Lifelock or Credit Karma can access a view of your credit to help monitor for you, but doesn’t have a negative effect on the score.
How does my employment impact my rate?
As much as I wish being an insurance agent gets me the lowest rate on my auto insurance, it doesn’t - but it does help. What you do for a living can make a difference in the discounts you get from your insurance company. Some professions can be viewed as higher risk, leading to higher premiums. An Uber driver, for example, runs a much higher risk of getting into an accident and hurting someone else. A realtor that uses their car all day to drive clients to see homes, or a sales rep that calls on businesses all day, or a pizza delivery driver... you get the picture. Depending on what you do for a living, you might see an adjustment in what you pay for insurance.
Education can also play an impact on the potential discount you get with your insurance. The higher level education you have, the more savings you can see on your premiums. All the more reason to stay in school! You can use your savings on insurance to pay off those student loans.
Why is it important to maintain continuous insurance?
Most people switch their auto insurance about as often as they get a new cell phone. Shopping to make sure you get the latest iPhone doesn’t really hurt you with your phone carrier, but when it comes to shopping insurance, you can bet that a new carrier is interested in how long you’ve been with your previous company. When a new insurance carrier sees you jumping ship every 6 months, they may not be as interested in you as if you had been with the same company for 5 years. If you’ve been with the same company for a long time, this means that you may get discounts with a new company because they’re hoping that you’ll stick around with them for just as long.
Same thing goes for how much liability you carried on your previous policy. Having more liability coverage not only ensures that you’re better protected, but now you’re telling insurance carriers that you have insurance because you see the benefits rather than keeping the minimum limits the state requires. Keeping the state minimum limits for liability is like having a checking account that you only keep adding enough money to avoid over drafting. If you were a bank, would you rather have the client with $500 or $50,000 in their account? Insurance companies use the same logic when you already carried higher liability limits on your previous policy. The higher your coverage limits on your previous policy, the better savings on your new policy.
I'm going out of town for 3 months, can I cancel my insurance and resume later?
Even if you have a period of time where you think you may not need your insurance, like if you go out of town for a few months, it’s probably best to keep your policy active. Like we talked about before, how long you’ve been with your carrier can impact your rates in the future, and if you decide to cancel your insurance, you’ll have a lapse when you restart your policy, which usually comes with a hefty price tag.
Cancelling your insurance also can hurt you when you drive other cars. Your insurance can come into play when you’re driving your best friend's car or even when you’re renting a van on your family vacation. Getting rid of your primary policy can hurt you in situations where you may have permissive use and need extra coverage to kick in.
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