You’ve probably seen the commercials promising cheap car insurance. We all like to save money these days, but cutting out important coverages can leave you unprotected and facing out of pocket expenses. Understanding some of the factors that determine your auto insurance rates can help you save money and maintain the coverage you need.
Many factors can affect your car insurance rate.
Auto insurance companies use many different criteria when evaluating an insurance application. Each car insurance company has guidelines regarding which groups of drivers they want to accept and how much they will charge those groups they consider a greater risk. The guidelines vary for each company, meaning that two companies comparing the same driver can arrive at vastly different rates.
During the underwriting process, car insurance applicants are placed in a group based on how much money and how many claims the insurance company believes it may have to pay. Underwriting is done automatically by software behind the scenes. At this time, the insurance company will look at motor vehicle records to see how many accidents or tickets a driver has received. Insurance companies also use an insurance history report to see if the driver has made any car insurance claims, and how much money was paid. Although accidents and violations can only affect the rates you receive for three years, many companies will look back five or more years when deciding if they want to offer you insurance. In addition, most auto insurance companies today look at the credit history of the applicant as a factor in determining the rates you will be charged.
If you let your policy lapse, you’ll pay more in the long run.
Most insurance companies view drivers who are licensed but don’t have insurance as risky or irresponsible. Because of this, if you let your policy lapse, you’ll probably pay more when you go to buy car insurance. To avoid this, if you don’t want to pay for insurance or are planning to let your policy expire because you want to switch companies, make sure to purchase car insurance before your current policy is cancelled.
Higher deductibles can lower your premium.
Insurance prices are based on how much money the insurance company believes it could have to pay. If you agree to pay for a larger portion of your own damages by raising your deductibles, your car insurance company knows they won’t have to pay as much for your claims resulting in a lower premium. If you decide to raise your deductibles to save money, be sure you can afford to pay the deductible if you have to make a claim.
Be sure you are receiving all the discounts available to you.
Most insurance companies offer auto insurance discounts for things like a safe driving record, car safety features, anti-theft devices, electronic payments, payment in full, and more. If you are insuring a teen driver, good student and drivers education discounts can help to reduce the cost. Almost all companies offer a discount for insuring both your home and auto with them.
Coverage affects what you pay.
The majority of your car insurance premium generally goes toward the legally-required liability portion of your policy. It’s not a good idea to reduce your liability limits in an attempt to save money, because you’ll be responsible for paying for any amount of damages above your policy limits. However, other coverages, although generally helpful, could be reduced or eliminated to lower your premium. If you have an older car that’s not worth very much, or if you won’t have a problem paying for a new car, collision and comprehensive coverages may not make economic sense. Talk to your agent about the best options for you.
Shopping for a new car? Consider the insurance premiums.
The Highway Loss Data Institute compiles insurance accident statistics for most types of cars. Insurance companies use data like this when setting prices on your insurance. For example, if the car you drive is very expensive to repair, the company is going to have to pay more if you get in an accident. Conversely, if the car you drive is extremely safe and protects occupants well, your insurance company will not have to pay as much if you’re involved in a accident. If your model of car is generally less likely to be stolen, your car insurance company is less likely to have to pay to replace it. All of these car related factors can raise or lower the auto insurance quotes you receive, so it makes sense to keep insurance in mind when purchasing a car. Of course, since rates are based on many factors other than just the car you drive, your overall rate may be more or less than someone else driving the same car.
