Your Auto Insurance
The goal of this column is to turn readers into smart insurance buyers. Your ultimate insurance premium is made up of several elements — most of which you control. Today’s focus is on how insurance companies determine your auto insurance premium.
So, class, it is time to sit down. Don’t pass notes, text others, or look out the window. Pay attention because I want you to be a smart insurance consumer.
As far back as when Lloyds of London was formed in the 1700s to insure cargo on sailing vessels, insurance companies have used underwriters to determine the potential a family or business has to being involved in claims. As it relates to auto insurance, the more likely you are to being involved in accidents, the higher your premium will be. There are several elements to determining the likelihood of your being involved in an accident and the resulting price of your auto insurance: (1) driving record, (2) territory where the auto is driven, (3) gender and age, (4) marital status, (5) prior insurance coverage, (6) vehicle use, (7) make and model of vehicle and (8) credit history. You control all of these elements, so knowing how they work helps you keep your insurance premium more affordable.
Driving record is obvious. There is a definite correlation between tickets and accidents. A study of driving records in Washington a few years ago revealed that fewer than 10% of drivers had any tickets or accidents in the past three years. Moreover, drivers with tickets were involved in more accidents. Driving record is a representation of attitude, and folks with more tickets are involved in more accidents. When they are, there is far more bodily injury and property damage. As a consequence, their rates are higher. This is a part of the premium calculation process that you can control, so leave earlier and take your time! And grow up if you need to!!!
Regarding territory, if you are driving in Seattle or Tacoma, you pay a higher premium than if you are living in one of our coastal communities. There are more dangerous drivers to avoid, vandalism losses, and hungry lawyers preying on innocents! (Just kidding Tom Brown!!)
Gender, age, and marital status are important — but there isn’t much you can do about that. Statistically, young males have more accidents than young females; married people have fewer claims than single people, and some age groups have more claims than others. Seniors have fewer claims due to reduced use of the car, or just plain sensibility acquired over a lifetime of learning from mistakes. So, call your agent if a youthful driver is no longer in the household and driving, or if you got married to get your rate modified.
If you’ve maintained a continuous record of auto insurance with one company or another, you will find it easier to get preferred rates. If you have been driving uninsured, the companies are unable to check back with a prior carrier to see what kind of claims you have had (yes, they do that.) As a consequence, you will have to pay a higher rate. When you have two or three years of continuous coverage, that’s a good time to ask your agent to request a premium reduction, or help you change companies to a preferred rate.
Vehicle use is a big deal in computing the premium. If you drive fewer than 3 miles one way to work or use the car strictly for pleasure, your rate is lower than if you drive 15 or more miles to work or drive around routinely on business. The thought is that the longer you are on the road, the more likely you are to be involved in an accident. So check with your agent to make sure that your premium reflects your actual usage. If you have changed jobs and drive a shorter distance to work, or take the transit, or perhaps you have retired, you may be eligible for a premium reduction. If you now drive a farther distance to work, call your agent to get your premium increased. (Just kidding, I wanted to see if you are still paying attention. Distance driven to work is a premium computation element and has nothing to do with coverage.)
Make and model of your car is a very important element in determining your premium. It costs more to insure a newer car or truck than an older one (assuming you carry Collision and Comprehensive). And the latest hot “muscle” car that you couldn’t afford when you were a kid but can now is also more expensive to insure. The premium for a young driver with a new hot car is more monthly than most other people pay in 6 months. So when you are shopping for cars, get out of the clutches of the car dealers, go home and call your insurance agent to find out the difference in premium between vehicles you are considering purchasing. The cost of the insurance is as important as the cost of the financing; so be diligent.
Credit score is something that did not exist in the premium calculations when I started in the business thirty some years ago. Your credit score determines so much in life these days and now affects your insurance premiums too. Statistically, people with better credit scores turn in fewer claims. This can be verified and is permitted by the insurance commissioners in how premiums are developed. So you know the drill: pay your bills on time so that the cost of financing a home or car, and your auto, home, and business insurance are lower. If you have been working on improving your credit score and are monitoring it, call your agent just to see if you are eligible for a reduced rate.
I abhor credit scoring in insurance premium calculations because it increases the premiums of folks who are having a more difficult time. But the idea is to have one more tool to allow policyholders who have maintained the best driving records, who have chosen to drive conservative cars, and who have taken care of the financial responsibilities to have the lowest rate possible.
Now that you are more aware of the elements of how your premium is calculated, you can work on getting preferred rates. Next time we will talk about specific auto insurance coverages, what they mean, and what you can do to reduce your premium.
Class dismissed.
