I recently got my auto insurance renewal policy and was shocked when I saw it was more than double my prior renewal amount.
This prompted me to look at factors which drove this increase – market driven or related to my specific situation – and to see if there is anything I could do find a lower cost, which includes switching insurance providers.
What Drives the Cost Of Your Insurance Premium
Your insurance premium is the amount of money you pay the insurer for insurance cover during the life of the policy, which is either 6 or 12 months for auto insurance.
The insurance premium can vary widely among insurance providers, which is why experts strongly recommend getting several quotes before committing to a policy. In fact, even for the same provider you are likely to get quotes that change on a daily basis.
Your premium, or cost of insurance is driven by several factors. Some are in your control like the cars you drive, the number of insured persons in your households and your driving history or violations. Others are completely outside your control driven by market forces and other macro economic factors like inflation.
Here are some of the ones that have the most impact on your auto insurance costs:
The Deductible: You generally choose your desired deductible when purchasing the insurance policy, and it is the amount you have to contribute if you make an insurance claim. It can range from $0 to $1000 and generally the higher your deductible the lower your premium, and vice-versa.
Companies hire actuaries to figure out what to charge people and the cost of your insurance premium is based on a number of factors. Some of which (like where you live and how old you are) you have little control over but there are a number of other variables which you can control that have a big bearing on your cost of insurance.
Locality-Driven Insurance Risk
Insurance companies use local area accident and claim history to set your insurance premiums even if you haven’t filed a claim and have a clean driving record. This can be very frustrating, and something which drove increases in my case many times, because you have little control of premiums that increase due to these external factors.
But know that insurance premiums aren’t raised on a whim, and the reason for a rate increase is almost always tied to insurance risk. Auto accidents and traffic violations are common explanations for an insurance rate increasing, but there are other reasons why car insurance premiums go up including an address change, new vehicle, and claims in your zip code.
• Whether your car is insured for agreed value or market value. If you choose an agreed value which is less than the market value, you may get a significantly lower premium
• Type of car – age, make, model & body style. In general, a more expensive or faster car will cost more to insure, simply because owners of those vehicles tend to drive faster
• Previous claims (or no claim discount). Don’t try and hide these – all the companies have access to each other’s and local/state accident databases
• Where you live. Insurance companies base their analysis down to the street where you live. Also if you have moved recently, you may get a cheaper insurance premium, particularly if you have moved to a “safer” area
• Whether the car is parked on the street or in a garage. A garage is considered safer, so generally the insurance is lower
• Any modifications or accessories (e.g. spoilers or large speakers)
• Whether you own the car or have a loan. Some companies also look at your credit history and score
• The deductible you agree to pay. The higher the deductible the lower your premium since you bear more of the initial costs before the insurance company has to pay
• Your driving record. The better your record, the lower your insurance. If you have a clean record for 5 or more years, you should be able to get the best rates in the market
• The number of additional drivers, and especially those under the age of 25. If you add your teenager to the policy expect your premium to almost double!
Because there are so many factors that go into figuring out a person’s insurance premium, there is sufficient variety among insurance providers to make it worthwhile to shop around for the best deal and the best cover for you. Here are some of the variable factor’s the insurance companies use when figuring your premium:
How to Find the Best Insurance
Generally the sequence of review is
- Call your current insurance comoany and ask why the premium increased. Was it due to your unqiue situaton or extenral factors. Ask them what you can do to lwoer your car insurance. Can they adjust deductibles or look for other discounts (e.g. multi-ployc, safe driver, associations etc)
- If your premium is not acceptable then shop around. look at the big 3 and then also across a coulple of insurance portals
- Talk to nearby friends and enighbours in similiar setups to you. Did they see a rise, what they did do and which companues?
- Call your insurance company with the improved quotes and see if they match
- If they cannot, switch providers. But just be aware of multi-policy etc.
I tend to start with insurance portals like Esurance or Insure me, because they search across a number of providers, but I have also found that if I go to specific insurance provider sites like GEICO or All State you can find certain exclusive deals not available elsewhere.
That’s why it’s a good idea to review your auto insurance cover when it comes time to renew. Normally I get a couple of competitor rates quotes when my policy is due for renewal and then call the representative of my current insurance provider to see if they can match the lower price. Most of them have a +/- 10% discretion, so you can normally get a decent deal this way (and stay with your current provider), particularly if you have a good driving record. If they cannot match it, I go with the cheaper company.
No matter which insurance provider you go with, there are number of things you can do that will lower the cost of your car insurance. Use the list above as a guide when shopping around for auto insurance and to see where you can improve your “car profile” to the insurance providers. I know that by simply stating in my online quote request form that I parked my car in a garage and had an alarm system (factory) installed, I got $200 dollars off my insurance over 6 months! Not bad for about 30 minutes of online work.
Do you have any other tips on lowering the cost of your insurance? If so, leave a comment to share.