Insurance Rates

Aug 4, 2017 | Personal Insurance

Insurance rates meaning in daily life

While scrolling through Facebook the other day, I noticed an ad for a well-known insurance company. Since they are my competitor I started scrolling through the comments to see what people had to say about them. There were many comments for and against this company but the majority of the comments were about how this company kept raising its rates. In the world of insurance, a policy’s rate/insurance premium is probably the biggest deciding factor in choosing a company. 

As a broker, it’s the driving force behind how we choose the company that would be best for our clients. So I am no stranger to the rate game. However, while the rates vary dramatically from company to company, there are very good reasons why insurance companies have to take rate increases. Here in Denver, Colorado, we take part to inform you of the reasons why your rates increase. We also discuss some steps you can do to lessen them.

A closer look at the cars of today

Take a walk outside and name the color of the cars that you can see. You will probably see a black car, a blue car, and no doubt a red car of some type. Now walk closer to those cars; do they have metallic flecks in them? Is the paint really brilliant? Of course, they are! This is because car manufacturers are no longer making just plain white, black, or red cars. They now have colors like Ardent Red, French Racing Blue, Tangerine Scream Tri-Coat, Arctic White, and many more. These new colors cost more than your standard colors did to manufacture. So to replace them if you are in an accident, it costs more.

Now take a look at your headlights. Back in the day, they cost about $20.00 give or take. Today a headlight, for my 2017 Ford Escape is right around $300.00. This is because the cars of today have special LED lights, Halogen, or Xenon lights. Those are just the top 3. Headlights are no longer a simple thing to fix and cheap to get. Many times if you are in an accident, the repair shop will have to order the headlight. This will add more to the cost of your repairs.

Next, let’s face it, not everybody out there is insured the way they should be, if at all. When you purchase personal auto insurance or commercial auto insurance, you are buying it, by law, to protect the other drivers on the road. You purchase comprehensive and collision coverage to protect your car. The other day when I was driving with my finance he asked me why we pay for insurance. The answer was actually a lot simpler than I thought. We pay for insurance because drivers do not want or choose not to obey the laws of driving. In essence, we pay for other people’s mistakes.

The reasons behind increasing rates

So now, I know what you are saying, you are still asking why insurance rates are so high. Well, the answer is this. While you are driving your 2016 Honda Civic, some person is speeding and doesn’t see you and swerves into your lane and hits you. When they do they wipe out the paint and the front right headlight. You take it to the shop and low and behold it is over $5,000! You get to fix the dent, repaint your Tangerine Scream Tri-Coat paint, and replace your Xenon headlight. 

Let’s face it folks our want for better, fancier, and more technically advanced cars are what’s driving up the price of insurance. Coupled with increases in accidents from overcrowded streets and highways, it is the perfect storm for higher repair prices. As we all know, it runs downhill and the consumer is at the bottom of that hill. Unfortunately, these are just a couple of the reasons, there are many more. Take a look at these other reasons why insurance rates go up. 

Violation of driving rules and regulations

If you are caught by the police because you don’t wear your seatbelt, it is a violation. These and other common reasons involving driving build up your insurance rates. There are two categories in which each violation falls – minor and major violations. Minor violations are the cases in which drivers fail to follow simple rules and regulations in driving. The major ones are grave offenses such as driving under the influence of alcohol or revoked license. 

Here is the list of some violations and their average insurance increase after a ticket. This is according to The increased rate appears after contract renewal. The price of your insurance will stay this way for a long time depending on the state you are in. For example, California requires insurers to offer the driver discount after 10 years from the time the violation happened.

DUI and DWI – 79%             Driving without a license – 12%

Reckless Driving – 73%       Texting while driving – 23%

Overspeeding – 30%            Driving with no insurance – 10%

Having said those offenses, these will bring you to file claims and lead your insurer to pay you out more. Insurance companies will consider you a high risk of fatalities on the road. No matter how small the offense is, it is still a violation. Every insurance has the access to check your state driving record. Thus, they can see how good or bad your record is and eventually raises your premium right after that. Health insurances will more likely to increase too and your coverage may be denied if you have past cases of DWI or DUI. 

Filing comprehensive claims

What is comprehensive coverage by the way? Why does a comprehensive claim incur high rates in your insurance? Comprehensive coverage protects you other than collision. Collision covers damages caused by a vehicle hitting your car and vice versa, or if you hit a tree or property. While theft, vandalism, and other natural disasters are under comprehensive coverage. 

It may be uncommon for comprehensive claims to raise the price of your insurance, but other insurers are requiring more strict rules. Some insurance companies increase rates when they paid out more than $500 for your claim. Also, multiple comprehensive claims result in higher rates. Better ask your agent if a comprehensive claim, which is a non-at-fault damage claim, incurs high premiums. 

In a different case, if an accident happened and you filed a non-at-fault claim, your premiums must not increase. In case your rates did, you should think twice and start getting a new insurance provider. Sometimes, paying for damages out of your pocket is okay if it is just minor damage. Remember that once your insurer made an increase it won’t get down anytime soon.

Getting older

Seniors have discounts when they reach the age of 55. However, older people tend to slow down the road. That is because of blurred vision, impaired hearing, and changes in reflexes because of health conditions. Often, they are prone to accidents due to these reasons and make insurance rates go up. Other insurers start to increase premiums if the client reaches the age of 65 years old. Others start at the age of 70. They are just like teens who typically experience more accidents on the road than mature drivers.

Aside from the accidents that older people may be involved in, the severity they are about to suffer often leads to fatalities or grave injuries. This factor may raise the cost of claims and may affect the elder’s standing in insurance causing a price hike in their premiums. Even if a senior does not experience any violation or accident, most probably this rule applies to the elders in general.

Car insurance lapses

If you forget to renew your insurance policy by any chance, there is a lapse. It is the period of time when your insurance coverage does not kick in. Other reasons for lapses may be because you are long gone abroad or you are not paying your premium religiously. It may simply be because you did not renew before it ends. Insurers too may drop you off if you have a lot of claims due to accidents and violations.

You should reinstate with your insurer to continue the insurance coverage or you may opt to find another one. Driving without insurance is a no-no as it is one of the driving violations so better be mindful about it. Driving without insurance faces costly penalties. Your driving record is tainted and considered high-risk. This will cause higher premiums the next time you purchase an auto insurance policy. 

If you have good records before and no claims filed, reinstatement is easy. Usually, they charge a fee for reinstating but cheaper rather than becoming a high-risk client. Remember to reinstate within a week after the lapse or sooner. Most companies do not put up with grace periods for lapses unless you will reinstate your present policy. In case you don’t have a car for some time, try to be enlisted as a driver under a family member’s policy. This way, you are not a high risk to them until such time you purchase insurance under your own name.

Moving to another location

Suppose you are moving to a new place. You will have to drive longer for work. Do you know that this may affect your premium? The location has got to do with the increasing rates you are about to face. The reason here is that your insurer based it on the history of claims to the place you will move into. If it is a big city, expect an increase since accidents are more likely to happen there because of the traffic and overcrowding. 

If you are moving just down the street, you still need to update your agent with your current address. Every state and zip code varies in insurance rates. If you are transferring to another state, try to contact your agent and see how much is the difference with your existing rate. You will then know if they have extended services in that state or if not, they may recommend another agent for you. Another thing is you may ask if your accumulated driver discounts can apply or be transferred to that state when you move.

You may also purchase new auto insurance for the state you are going to reside in. Start getting quotes or shop around for insurance that will suit your budget and needs. After settling, update your insurer with the changes. When planning to buy a new policy from another insurance company, do not cancel your existing policy as this may cause a coverage lapse.

Falling insurance credit score

Most of the time, insurance companies often base their increase in premiums on credit scores. It is because this signals them and indicates how often a client might file a claim. Plummeted credit scores earn increased insurance rates. How is it determined?

Here’s how:

  • History of payments – Simply put, pay on time. Expect your credit score will be low if you do not follow accordingly.
  • At-fault accident claims – It is a record of negligence If you are at-fault when the accident happens. Thus, it will earn a low score.
  • Coverage lapses – As mentioned above, any lapse in your insurance incurs higher rates

Insurance companies use a score range to compute your insurance score. It is presented by three-digit numbers starting from 200-999. If your insurance score is low, your premium will be high. However, some states do not allow insurers to use credit scores as the basis of the insurance rates. These are Hawaii, California, and Massachusetts. Insurance companies may have their own score models aside from looking at your credit score as the basis of their calculation.

At-fault Accident Claims

When an accident happens, it is always important to determine who is at fault. If you are the one who caused the accident, then you are responsible for the charges. Though sometimes, the charges are divided into the people involved. Insurance companies determine who is at fault by looking at negligence. It is the failure to respond to a situation responsibly. In whatever you do, always act reasonably to prevent becoming negligent.

You are considered negligent if you could have prevented an incident if you act on it responsibly but you chose not to. Then it led to an accident. For instance, A claim is paid even if you are negligent. However, they might not pay excessive damage. Some insurers offer accident forgiveness that will allow you to have one at-fault claim in your policy. This will not affect your record and will not increase your rates. Again, it is best to ask your agent about the possibility of this feature in your policy.

Another problem is if they find you at fault and negligent most times, your policy might be canceled. They might review your history of claims and therefore decide if they will cancel your policy because you’re a high-risk policyholder. If your contract is canceled, you will need to transfer to another insurer. This will cause higher premiums if they find out your history in another insurance company where you came from. 

Ways to Reduce Increased Rates

Maintaining a car incurs hefty costs most of the time especially if accidents hit it. Luckily, you don’t have to carry all the burden because of your insurance. However, rates vary depending on the factors that you yourself made in the past and current situations. Knowing why your insurance rates keep on increasing is your first step in determining how to lower them. These tips will help a lot in keeping you at the right level of your premium. 

Insure multiple cars and drivers

Insurance companies prefer you to do continuous business with them. Therefore, it is beneficial for you if you will let them provide all your insurance needs such as bundling your home and car insurance. This will earn discounts on your insurance premium if you will have bulk policies with them. If you do have multiple cars, insure them with the same insurer. 

Also, insuring two or more drivers that are driving your car earns a decreased rate. When we say insuring drivers under your car insurance, it means your family or your spouse who is living with you. Other people that are unrelated to you can be insured under your car insurance provided that you both own the vehicle. It may apply if they are licensed and have regular access to your car.

Having a teen driver under your insurance may lower your premium. That is if he can show good grades or rank as a B student and above. This good student discount may earn a percentage of 1% to 39% depending on your insurance provider. However, not all companies offer a good student discount.

Keep being a good driver

Simply put, practice safe driving. This is automatic but with the range of accidents around the road, it is reminded to the drivers every time. Avoid accidents and tickets from overspeeding and other violations as this will affect your premium in the end. A continuous record of safe driving garner reduced rates every three to five years. Good driving acquires a 5% discount on your premium. 

Drivers with moving violations increase insurance scores thus leading to higher rates. The drivers insured under your insurance must also do safe driving to increase discount offers since a good driver discount is applicable per driver. You may opt to purchase accident forgiveness coverage if your insurer has that feature. It will keep your premiums from surcharging due to violations and at-fault accidents.

Study defensive driving 

The defensive driving course teaches skills in driving to defend yourself from the collision caused by drunk or bad drivers and other risky situations. They teach strategies to identify risks immediately from other drivers on the road and be able to avoid them the soonest. Some insurance companies offer discounts for those who completed this course. 

They consider the effort of learning defensive driving as this will help you become a safe driver. Safe driving means fewer accidents and leads to zero claims. Ask your agent if they offer such a discount before you enroll. This is to know that your time and effort are reciprocated by learning the course and at the same time lower your rates.

Some lessons that this course tackles include:

  • Focused driving – Checking mirrors while driving, speed level, abiding traffic rules, and road conditions.
  • Avoidance of distractions – Avoiding the use of cellphones, loud music, other things that make you lose concentration while driving.
  • Alertness – Avoiding drunken state, too much tiredness, drug, or medication intake that slows down response time.
  • Attentiveness – Paying attention to the road while keeping eyes moving for possible hazards from another car or upcoming weather.
  • Speed and distance – Keeping speed at proper level especially during traffic and enough distance following another car to avoid crashes.
  • Breakdowns – Learning to notice mechanical failure while driving and getting the car off from the road once it happens to avoid traffic and accidents.

Shop around for lower insurance rates

It is good to stay if you have good business with your insurer but if your premiums are quite skyrocketing, why not try others? Before your contract ends, try to ask for quotes from other competing insurance companies that offer lower rates and then compare. When we say shop for lower rates it doesn’t mean you are just after the rates. Of course, it is but try to get a better quote first from other companies that are worthy of your money. 

It doesn’t mean it is always good when we talk about cheap rates or companies with low prices of policies. Always rely on their creditworthiness or the ability to pay you when you file claims. You may check first the insurance company’s financial strength rate. After all, a good and affordable policy becomes a good-to-go if the company shows proof of finances to pay claims. 

Drive less than usual

Your insurer will ask you how many miles you drive per year. If you often drive for work and it takes more than an hour to be there every day, then expect a higher premium. Being always on the road implies more chances of encountering accidents and therefore this increases your rates. That is why the location has a big impact on purchasing auto insurance. 

If your home is near your job then I guess sometimes you might just walk. If it is too near then you might just drive a little mileage to get there. This way you won’t be spending higher costs in paying your premium. If in case you are an infrequent driver, tell your agent about it to lessen the premium price. Even carpooling helps in reducing your rates. Ask your agent for possible discounts on low mileage and if you are eligible for that. 

Choose insurance-friendly cars

Who wouldn’t want to buy luxurious big cars? However, having those kinds of cars incur higher premiums in your insurance. Insurers based the premium price on the vehicle type, model, repair costs, and cases of theft for this certain vehicle. High-end vehicles have expensive parts and the newest features that are costly when repaired. High-technology power engines, based on some insurer’s point of view, will likely imply overspeeding and may cause a collision.

Choosing hybrid cars also helps lower your rates as it saves fuel and helps the environment become greener. Other aspects that insurers look into are the safety features that your car has. Installed anti-theft systems such as car alarms and LoJacks, telematics, and the low price of the parts are some of those. Telematics tracks your driving skills, mileage, and the moment you are driving. Family vehicles tend to earn cheaper premiums because they are likely to have cautious drivers. They are safer drivers because they are always after the safety of their families while driving. 

Increase deductibles

A deductible is the amount of money you have to pay first before your insurance starts to kick in. Lower deductibles mean higher premiums so you may opt to increase your deductible that you can handle once you file a claim. Some things you need to consider when raising your deductibles are the price of your policy, your finances, and the frequency of filing claims.

Insurance Information Institute states that raising the deductibles from $200 to $500 lowers the costs of collision and comprehensive up to 30%. While a $1000 deductible saves up to 40%. Being a good driver plays a big role in choosing to boost your deductible. If you trust yourself not to involve yourself in accidents and keep safe driving, then it is good to consider raising them. It will save you money in the long run. Make sure though that you can afford the amount you indicate as your deductible once unexpected incidents happen.

Ensure a better credit score

Most insurance companies always look after their policyholders’ history or record to determine their likelihood of being a high-risk client. Some companies now even find out the credit ratings you have in other lending companies to figure out the cost of your premium. A good credit score indicates a good-paying character to them. 

Improving your credit score needs the most important rule— pay on time. It is every lending and insurance company’s objective to keep its client’s pay religiously. If you happen to miss a payment, pay as soon as possible to keep the record current. Pay credit card debts to lessen the credit utilization rate and check your credit report regularly to keep updated and ensure everything written is accurate.

Review and drop other extra coverages

Usually, auto insurances come with a lot of extra coverages which sometimes you do not need especially as your car ages. Insurers mostly relate to the value of your car in the market. When the value of your car decreases as it gets old, some coverages are not necessary anymore. Some coverages are mandatory while there are optional so you may omit some of them to lower your rates.

Mandatory coverages that most states require include bodily and property damage liability. This covers you from injuries that you caused to others during accidents and other damage to their auto or property. Some states require drivers to have underinsured or uninsured motorist coverage and personal injury protection.

Personal injury protection reimburses medical expenses to you and your passengers in case of injuries. Underinsured or uninsured motorist coverage applies when the at-fault driver doesn’t have enough coverage to pay the damage.

Optional coverages are collision and comprehensive coverage. Collision coverage pays the repair or replacement of your car not minding who is at fault when the accident happened. Comprehensive coverage on the other hand pays for the damages or losses that are not caused by a collision. These events are vandalism, theft, broken glass, and fire. These coverages are best to avail of if your car is still new. If your car is old, it is not a good move to purchase these coverages. Your insurer won’t pay a claim for repair if it surpasses the market value of your car. 

Inquire for other types of discounts

There are other special discounts you may not know that your insurer is offering so it is best to ask.

Some of them implement these discounts :

  • Driver affiliation perks such as military, affinity, or roadside assistance.
  • Customer loyalty discounts for multi-car, loyalty, bundled insurance, or early renewal discounts.
  • Payment-based discounts for having paid in full, auto-payment, or going paperless (online billing/payments).

It is a big job to manage customers’ accounts. That’s why some insurers give incentives to those who pay online as it makes their work easier. It may earn a 3% discount on your part if you will agree to this payment scheme. Some insurers offer more incentives such as automated payments and 5-10% if you pay your premium upfront for the whole year. It is very convenient to pay in full or auto-pay since you won’t be worrying that you may miss payments.

The takeaway

Yes, I understand that you want to have big discounts on your auto insurance. Who wouldn’t? The question is, are you qualified for these discounts? We know now that in order to get that we have to follow certain requirements. Insurance companies will grant them to policyholders that follow the procedures and their implemented metrics. As cars of the new generation keep on increasing their technology and their price, the insurance rates will continue to change and increase.

You may compare quotes to settle finally in the insurer you think best. Just keep in mind that do not settle for cheaper ones without searching for the stability to pay claims. You may consider a lot of things before you find the one that best suits your budget and needs.

As a broker, it’s our job to do all that we can to make sure that your rates are as fair and low as possible. So, next time you’re shopping around for insurance, you can contact anyone on our team. We’ll help you with getting the best price for your coverage needs. Call us now.

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