One of the most common questions I hear as an insurance agent is, “Why is my premium so high?”
Years ago, the answer used to be as simple as your age and your sex. In today’s insurance world, there are so many other factors that play a part in your auto insurance premium! The industry is moving towards risk based rating, which means that the rate is more specific to your habits. Insurance companies have started looking at how often you drive, what time of day you drive, where you live, your credit history, and what type of car you drive. (In addition to the standard rating factors – age, sex and type of coverage you select.)
How Often & When You Drive: The more you are on the road, the more likely you are to have an accident. The time of day that you drive can also impact your rate. More accidents occur between 1 am and 5 am than during other times of day.
Where You Live: Insurance companies love statistics. If you are math person, you should seriously consider working for an insurance company in the department that creates their insurance rates. Most companies have an entire staff dedicated to looking at statistics, including number of accidents likely to occur in certain geographic areas. And, the severity of the claims in certain geographic areas. That’s why your rates will be higher living in Chicago versus living in a small town with 1 stop light.
Credit History: A person’s credit history can predict how likely it is that they will turn in a claim. This directly impacts a person’s insurance rate! Your neighbor could have a higher auto insurance rate than you simply because they carry a higher balance on their credit card than you do. Insurance companies feel that the more financially strapped you are, the more likely you’ll be unable to handle the small claims that come your way. They want to be able to charge appropriately for the risk they are taking on.
Type of Car You Drive: Cars that are no longer manufactured are harder to find parts for, and the parts are generally more expensive. This means that if you drive a car that is no longer manufactured, it can impact your rate. A car made with expensive parts (think Tesla) is also more expensive to insure because of the cost to repair it. Smaller cars (such has Honda Civics) tend to damage very easily in a crash, so the rates for this type of car can be higher than a mid-sized sedan.
Age and Sex: Drivers under age 25 and drivers over age 75 typically see higher rates than other drivers. This is simply because statistics show that these age groups tend to have more claims than other age groups. Younger male drivers may have a bit higher rate than young female drivers, but this is starting to equal out. Auto claim history shows that younger females have just as many claims as younger male drivers.
There are so many different factors that can affect your auto rate! Always check with your agent to make sure that you are receiving all the discounts you are eligible for!