Many factors can impact your ultimate premium cost when purchasing Auto Insurance. You must understand the factors utilized so that you can effectively work with your Insurance Agent to develop a well balanced plan that provides the coverage you need without breaking the bank.
(1) How is Your Insurance Rate Determined?
Two primary categories determine what you pay for auto insurance. The first factor is underwriting and the second factor is rating. Insurance companies underwrite to assess the risk associated with an applicant, group the applicant with other similar risks and decide if the company will accept the application. Based on the results of the underwriting process, the rating assigns a price based on what the insurer believes it will cost to assume the financial responsibility for the applicant’s potential claim.
Each company adopts its own rating system, although there are general guidelines that all companies follow.
The single greatest influence on the rating process is claim frequency. This does not mean how many times you specifically have made an insurance claim, although that will have an additional impact. Claim frequency measures how often an insured event occurs within a group relative to the number of policies contained in that group. Persons sharing characteristics with high claims groups will be charged more for insurance coverage, statistically speaking.
Specific Factors that Affect Your Rate
- Your driving record – drivers with previous violations or accidents are considered to be higher risk relative to their claim and violation-free counterparts
- Your geographic territory – urban areas have more claims than rural areas
- Your gender and age – males have more accidents; certain age groups have more claims
- Your marital status – married people show lower rates of claims
- Prior insurance coverage – if you have been cancelled for non-payment of premiums
- Vehicle use – higher annual mileage results in higher exposure to risk
- Make and model of your vehicle – luxury and high performance vehicles have a higher number of claims
(2) Ask Your Agent About Discounts
Discounts are awarded because the insurance company sees you as a “better risk.” Here are some discounts you should look for: multiple vehicles, driver education courses, good student, safety devices, anti-theft devices, low mileage, good driver/renewal, auto/home package and dividends. Not all states offer all discounts, so check with your agent to see if you qualify.
(3) Choose Optional Coverage Wisely
The most commonly recognized coverages, in addition to the basic liability package, are collision and comprehensive coverages. Collision coverage pays for physical damage to your car as a result of your auto colliding with an object such as a tree or another car. This is relatively expensive coverage and is not required by law. Comprehensive coverage pays for damage to your auto from almost all other causes, including fire, severe weather, vandalism, floods and theft. This coverage will also cover broken glass and windshield damage. Comprehensive coverage is less expensive than collision, but is also optional. Other optional coverages include medical payments coverage, rental reimbursement coverage and towing and labor coverage.
(4) Choosing Appropriate Coverage Based on Your Circumstances
Financed and Newer Vehicles: Most Vehicle loan providers require that you carry Full Coverage, more specifically, Collision and Comprehensive Coverage with maximum deductibles of $1000 or less. Additionally, they may require Minimum Limits of Liability to protect the Asset while still under loan. GAP Insurance should be utilized to cover any potential difference between a total loss valuation by your insurance company (what they would payout for a potential total loss (See www.kbb.com for reference) and what is owed on the loan to prevent additional out-of-pocket expenses beyond your deductible and any applicable depreciation. As you pay down the loan and your loan balance is significantly less than the value of the vehicle, you may drop GAP coverage as you have mitigated the exposure at that point.
Non-Financed and Aging Vehicles: For “free and clear” and older vehicles, it may be more appropriate to carry Liability Only with Uninsured/Underinsured Property Damage (Ohio). Ohioans can elect to carry Uninsured/Underinsured Property Damage when no Collision or Comprehensive Coverage has been chosen. This coverage only applies to your vehicle in the event of loss due to an uninsured or underinsured motorist. It does NOT cover At-Fault accidents that you the owner have caused. Collision coverage applies to all losses including those caused by the owner and may be preferred even on older vehicles as a result.
*Bonus Tip: Earmark funds equal to your Auto and Home deductibles in your Emergency Fund, Savings, etc…to be allocated as your deductible in the event of a loss. This will allow you to carry higher deductibles and save!