Insurance premiums fluctuate in price for a number of reasons; some of them at your discretion and some you cannot control. If you’ve ever wondered what actually goes into your insurance premium costs, look no further.
Your accident insurance premiums are unlikely to increase, if the accident was not your fault, and this point of view is confirmed by the insurance companies. Damage to your vehicle will be repaired using money from the other driver’s car insurance. Your premium will not increase, as your insurance company did not have to pay out a penny. However, this is not the case if you are hit by an uninsured driver. In this instance, the damage to your car will have to be repaired using your insurance. Since your insurance company had to pay out, then they are likely to increase the cost of your insurance premiums.
Oftentimes when applying for insurance coverage, consumers will find that their ZIP code is a significant determining factor in their car insurance premiums. Insurance providers are interested in minimizing risk; that’s what keeps their companies afloat. Consequently customers whose location represents an increased risk, take an extra hit on their car insurance bills. Here are several reasons an insurer uses zip codes to determine rates:
Customers who purchase comprehensive as well as liability coverage will find that insurance providers use their zip code as a very large determining factor when calculating the cost of these types of coverage. A stolen car more often than not represents a total loss to the insurer. Even vehicles that have been totaled in accidents often have some value, but a car that’s stolen and not recovered must be replaced by the insurance company without any mitigating value. This means that customers who live in areas that have a higher rate of auto theft will often take an extra hit if they choose to buy comprehensive coverage insurance.
Areas that have more congestion on their roads may also pay a higher rate for liability as well as comprehensive coverage. By following past trends, insurance companies have noticed areas that have higher than average traffic on the roads in the morning have an increased instance of collisions. That means all types of insurance policies will be affected. Especially in cities that are notorious for traffic problems, like Seattle or New York. That’s another reason to keep your driving record clean if you live in these areas.
Unfortunately, people in certain areas may have to pay for the mistakes of others. Areas with increased claims’ histories in general often see an increased risk in their premiums. For customers who live in a particular region or locality that has been pinpointed as having a higher risk of drunk or impaired driving, reckless driving, fatality accidents, or accidents due to excessive speed have to pay more.
Mother Nature also has a say in what you pay for insurance rates. Customers whose areas are often affected by natural disasters pay higher rates all around. Areas commonly affected by hurricanes, floods, or tornadoes have higher rates for comprehensive coverage. Beyond just the well-known “big name” disasters, you might see increased rates for something as simple as areas that commonly have thunderstorms or places that have big trees.
While it is important to be aware of these factors and how they may affect your premiums, it’s also important to remember that not all types of policies will be affected. Things like the weather don’t affect liability coverage. Your locality isn’t nearly as significant as your driving record. Additionally, some now enforce laws that prohibit insurance companies to use ZIP codes as a determining factor for insurance coverage..
It stands to reason that the more features and neat gizmos on a car will increase the car’s insurance value, and therefore raise your car’s insurance premium. The insurer is looking at what they would have to pay in claims situations, and every bit of value in the vehicle raises that theoretical payout. However, that’s just the beginning of how an auto insurance company uses your vehicle data to get a risk rating and premium calculation.
Another way your car model factors into your rates has to do with the ISO. This is not the same ISO that takes care of business standardization. The Insurance Services Office, operating out of New Jersey, provides a global clientele with specific data on risk assessments. The ISO classifies a specific car model according to all kinds of information like how desirable it is to thieves, and how likely it is to be involved in a collision. These complex algorithms go back to the auto insurance companies, who price your premiums accordingly.
There’s yet another way that the ISO and auto insurers value risk on vehicles: they get information about who is most likely to buy a certain type of car. That means if you purchase a hot new car that is usually driven by a young male (a demographic group with higher risk and insurance rates), you may be subject to those rates, even if you are not a young male. The “average driver” for a specific model often gets factored into policies.
For a driver who feels that he or she is getting taken for a ride with regard to insurance risk assessments, the best way out is to talk to the insurer about your specifics. The auto insurance world is an open marketplace. If you are not happy with your rates, you can go elsewhere. Give insurers specific information about your driving record and overall situation, and see if you can get some savings that way.
