Must love driving records, know a lot about cars, and enjoy long drives in some of the riskiest cities and states in the U.S.
It would be great if we could write personal ads to aid in the search for the perfect insurer with the cheapest insurance premiums, but like most online dating profiles and personal ads, what you’re going to get may be the furthest thing away from what you want and may not be what you expected. It would also mean that everyone’s favorite insurance super hero, Flo from Progressive, would be asked out on a lot of dates since she has that magical “Name Your Own Price” tool.
Unfortunately neither can promise consistently cheap auto insurance premiums, despite being able to say exactly what you want and how much you want to pay for it. Flo can offer you the ability to use the name your own price tool, but she has no control over the majority of what truly determines auto insurance premiums. When an insurance company calculates premiums, it’s not black and white, and for consumers, this can seem like an area of the trendiest shade of grey.
Insurers use certain factors when setting insurance rates, a lot of which depends on the state you live in, but other personal factors play an important part too. Some of these factors you can control, and others you may not have control over at all. Additionally, some factors hold more sway than others, as demonstrated in a study conducted by the Consumer Federation of America (CFA). The group invented two consumers and then continued to search for auto insurance. Both fictional individuals were 30 years old, female, lived in the same town, and had been behind the wheel for 10 years.
One of the main differences between the two was that one suffered an accident, resulting in an $800 auto insurance claim. The woman who hadn’t had an accident was a single receptionist with a high school diploma. The woman who had the accident was a married executive with a graduate degree. Surprisingly, the CFA found that the woman who had the accident consistently got lower rates. This turned into an argument that insurance companies were considering the wrong factors, viewing factors unfairly, and that other factors weren’t being taken into consideration at all.
Regardless of what factors are used, auto insurance premiums are one thing you can’t magically speak into existence. The Secret isn’t going to help you out with this one, so it’s essential to know what factors determine your insurance rates that you do have direct control over. That means real control — not controlling negative thoughts of negative premiums from your mind. If you can exercise better control over these particular influences, you will have unlocked the secret of auto insurance and will have concrete control over many, meaning you’re in control over your rates as much as possible. Here are the most common contributing factors that the ‘Policy Term of Magical Thinking’ is composed of. :
- Your Car: No surprise — you knew this. The kind of car you drive plays a large role in determining your auto insurance. Value and safety are two of the main considerations insurance companies look at. If your car has a high value, it’s going to cost more to insure because the insurance company will suffer a larger payout in the event of a serious claim. On the other hand, if your car is an older model, your rates might be cheaper as long as the car is considered safe. Unsafe cars are normally more expensive to insure because there’s high risk of injury or death if an accident occurs. This means not only to yourself, but to others as well who look like nothing but lawsuits to insurers.
- Age: Again, no surprise, especially if you have a 16-year-old child on your auto insurance policy. A younger driver will always pay more than someone who’s middle aged. You have to be careful what you wish for though. If you’re a young driver and just can’t wait to continue to age so you can get better insurance rates, you better hope you don’t make it past the age of 40 or so. As all drivers age, insurance rates often go back up due to the increased risk of impaired driving resulting from old-age afflictions like poor eyesight or slowed response time in emergencies.
- Job: When you search for insurance quotes, you’ll notice that you’re asked how many miles you travel back and forth to work and how often. The obvious logic is that the longer you’re on the road, the more risk you run of being in an accident. Due to popular trends like telecommuting, pay as you drive insurance (PAYD), aka usage-based insurance, has become increasingly popular as well since people aren’t having to commute back and forth on a daily basis. Such policies hurt those in professions like “road warriors” in sales, but for those who are working in their pajamas every day (I confess, that’s largely an urban myth — hate to spoil anyone’s career goals but it’s not usually the case) usage-based insurance is to auto insurance as Bag, Borrow, or Steal would have been to Carrie Bradshaw had she discovered it before “Disaster & the City Part 1.”
- Where You Live: The region in which you live is a main concern for insurance companies. Each state has its own method for determining auto insurance premiums, but even your neighborhood can affect the price you pay. If you live in a city that experiences a high number of collisions, higher premiums help offset the increased number of claims. Additionally, if you live in a city or neighborhood with a high volume of crime, your rates might be higher due to an increased risk of vandalism or theft.
- Your Credit Score: Sigh. Like you really needed a reminder about all that money you owe Sallie. You probably never thought those late student loan payments would come back to haunt you, but if it lowered your credit score, it could raise your auto insurance rates. Some believe this is an unfair practice which ‘penalizes’ poor people like overdraft charges do, but there’s hard data to back up insurers’ reason for including this. Multiple research has shown a direct and significant correlation between insurance companies and credit scores and have shown that positive credit scores go hand in hand with safe drivers.
Additionally, insurers want long-term business on the books, and such studies have also shown that those with low credit ratings are more likely to be “transient,” not only in the sense of moving frequently, but also in terms of hopping between insurers frequently. Additionally, some claim that those with poor credit scores are more likely to file claims — both fraudulent ones and legit ones. The legit claims/credit score/auto insurance correlation is supposedly that those with lower credit scores are more likely to drive older vehicles that lack important safety measures and are also more likely to let problems go un-repaired, which can easily result in accidents.
- Your Gender: Typically, men pay more than women for car insurance. While it may not seem fair, insurance companies rely on hard facts and when statistics are compared side by side, women are safer drivers. Men tend to be involved in more accidents and receive more driving violations, presenting more risks for insurance companies.
- Your Driving History: There’s no arguing this one. Whether you’re Driving Miss Daisy, a sprited new driver, or a soccer mom (or dad) driving a mini-van, if you have a heavy right foot, slam on the brakes too little, too late, or too suddenly, or a propensity to ignore traffic laws, it’s a clear representation of your driving habits. Although the Department of Motor Vehicles in most states update records either annually or semi-annually, a common procedure is for state DMVs to go an extra mile and wave the red flag again in front of your insurer if you’ve had several tickets over the past two years. If you have enough tickets, your rates are raised because you enter the high-risk driving pool. Insurers equate speeding tickets, reckless driving tickets, and serious traffic violations like DUIs with risky behavior in general, making you more of a liability to insure. If you’re bold enough to drive 25 mph over the speed limit or have a few cocktails before hitting the road, you’re probably more likely to play “Chicken” or engage in other risky driving behavior. Spotty driving records are a clear indicator of the likelihood of making more claims, and not only that, making claims that result in super expensive payouts due to the likely severity of the accident.
The important thing to remember is that these are factors you can change and have control over. Once you understand them, you can use them to your advantage when looking for car insurance. In addition to the above factors, other determining factors in how much you pay include the amount of coverage you choose, including choices like deductible limits. Many are guilty of buying insurance with the first providers they get quotes from, but it does pay to shop around. If you feel that’s a waste of time, believing the time isn’t worth the money it will cost you, you’re likely to miss out on the best premiums you as an individual can get. That’s because one of the biggest factors that affect premiums is the actual insurance company you opt for. Unfortunately, that’s a factor you can’t control in the slightest, regardless of whether the insurer lures you in with a price-marking label maker.
Follow Desiree on Twitter @DesireeBaughman.