Getting a good deal on car insurance can be challenging, but what can you do to keep your premiums down long term? You may be thinking you’ve got the best rates, then spend an hour looking at online insurance quotes and realize you’re overpaying for car insurance. We’ll talk about how pricing in the car insurance industry works, and share five well-kept secrets that insiders know.
Insurance companies are all about risk. They avoid risk by screening out the individuals they think are most likely to file a claim. Since in most states, all drivers must have auto insurance coverage, car insurance companies simply adjust their rates so that higher risk drivers pay more on their premiums.
Knowing what constitutes risk from an insurer’s perspective will help explain a lot about the rates you pay. Risk is estimated based on a number of factors, some of which may seem irrelevant to you, but industry research supports the actuarial tables used by car insurance companies.
Searching through pages of online insurance quotes won’t tell you why your rates are too high. You have to understand how the industry views risk. Insurers look at a variety of details when determining your auto insurance premiums. You may be surprised at the kinds of indicators they are looking for.
- Your job title affects your car insurance rates. Insurance companies spend millions on research to find out that engineers, for example are a lower risk than construction workers. That is, they tend to file fewer car insurance claims.
- Your credit history will affect your premiums. Car insurance companies use your credit score to determine your risk. Specific criteria, such as the number of late payments you’ve made and how many revolving credit accounts (credit cards) you carry go into their special algorithms. Insurance scores are calculated separately by each insurance company, using proprietary logarithms, so it’s impossible to know your score.
- Poor driving habits are easy to spot. Even if you’ve never filed a claim against your car insurance, even if you’ve never been in an accident, your driving history could be working against you. Do you have any speeding tickets or other moving violations? These will certainly cause you to have higher insurance premiums.
- Comprehensive coverage may not be enough to pay off your auto loan. If you owe more on your car than it’s worth (upside down on your auto loan) your comprehensive coverage won’t pay off the loan. If you can’t refinance to get right-side-up, consider buying gap insurance to make sure your loan will be paid off if your car gets totaled.
- Most insurers offer convenient monthly payments for any policy. This seems to be a good value for consumers, but you’re actually paying more if you’re using monthly installments. Insurers charge a monthly installment fee to spread the cost over a number of months. To save money, pay the full premium up front.
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