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You’ve probably seen articles like this before “5 Ways to Lower Your Auto Insurance Premium,” or “How To Save Money on Auto Insurance.”  All pieces with strong, dynamic titles featuring content that hardly reveal anything about Auto Insurance.  Although the typical advice of “taking a defensive driving course” is still true, it’s hard to really lower your premium before you understand why Auto Insurance is expensive to begin with.

When an auto insurance company decides to insure you, they are agreeing to pay for any loss you may accrue after an accident or legal incident.  In return, you pay a premium, which is essentially a fee that guarantees the insurance companies loyalty.  What is important to remember is that the insurance company makes money on premiums and loses money on claims.  So when they are reviewing your history, they are essentially asking themselves if this person is worth covering.  If they decide you are too much of a risk, then they will deny you coverage.  In the same way that you wouldn’t want to loan money to someone who’s bad with their finances.

Auto Insurance companies decide your premiums by predicting your “risk,” or how often you may file a claim.  They predict this through a number of factors, including your finances and lifestyle.  Although different insurance companies prioritize different factors, every company will issue a Credit-Based Insurance Score (CBIS) based on your finances.  To them, a good credit score is universal, they assume that if you are on time with your credit card payments then you will also be on time with your insurance payments.  Although no insurer will deny you for having “bad credit,” being on time with payments makes you look more trustworthy to them, which leads to a lower premium.

Insurance companies assess your lifestyle through a number of factors, but mostly through your occupation, location, and age.  Males under 26 usually have higher premiums because they are seen as more prone to take risks.  Office workers tend to have lower premiums because using their vehicle isn’t an active part of their workday.  However, any worker who has a long commute to work will see an increased premium.

Believe it or not, your physical location also affects how much you pay for insurance.  Some states have specific no-fault clauses that significantly raise your auto insurance rate.  A no-fault system means that the insurance company reimburses you for any claim, no matter who was at fault.  Although this does lead to increased coverage, it also leads to higher prices.  It’s no coincidence that the states with the highest premiums, such as Michigan, Pennsylvania, and Louisiana, also rank among the most expensive insurance rates in the country.

Of course there are other factors that tie into auto insurance rates, but getting into the details would require an article that is more than 500 words.  This is only a stepping stone towards saving money.  Duramerica is here to serve, and to properly do so, we’d also have to educate.  The best way to secure a rate that you’re comfortable with is to learn about the process that goes into formulating a price.  It may take some immediate time, but you will be thanking yourself in the long haul when you save yourself a significant amount of money throughout the years.

Posted 2:12 PM  View Comments

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