Understanding Insurance Terminology

Understanding Insurance Terminology

4 Things That Can Affect Your Auto Insurance Rates

by Vilma Maki

Ever felt like you're paying more for auto insurance than you should? You're not alone. Despite the average cost of auto insurance totaling a little over $900 in 2014, many drivers pay much more for their coverage than necessary. The following looks at four common factors that could cause you to pay more for your auto insurance coverage.

1. Your Overall Driving History

As far as auto insurance companies are concerned, your overall driving history says a lot about your potential risk factor. In turn, it also affects your auto insurance rates. Here are a few aspects of your driving history to keep in mind:

  • Average mileage—The more miles you drive each day, the more insurers consider you at risk for an accident. Driving fewer miles a day can help lower insurance premiums, especially if you have usage-based insurance, where you pay only for the miles you drive.
  • Moving violations—Having a speeding ticket or two on your driving record could result in higher insurance rates. More serious driving offenses, such as DUI, could cause steep increases in your premiums.
  • Previous claims—If you've filed an insurance claim once or twice before, then you can expect your rates to increase due to the elevated risk of yet another claim.

2. The Type of Car You Drive

Your car can not only say volumes about your personality, but also how much you pay for insurance each year. Insurance companies take a look at your car's sticker price, body type, safety record, theft rates, repair costs and a broad range of other factors when generating your insurance rates. It's why certain cars like sports coupes and convertibles often give drivers higher rates than mid-sized sedans.

3. The Type of Coverage You Choose

Your auto insurance rates also depend on the amount of coverage you purchase beyond the mandatory minimums required for your state. For instance, carrying liability limits well above the state-mandated minimums may give you more protection in the event of an accident, but you'll end up paying more each month. Lower deductibles for optional coverage can also cost you more money over the long run.

If you want to save money by changing how your insurance coverage works, here are a couple of questions you should ask yourself:

  • Are you willing to pay a higher deductible? In most cases, raising your deductible can help lower your insurance premiums substantially. This should only be done if you can set aside enough money to cover the higher deductible if you need to file a claim.
  • How old is your vehicle and how much is it really worth? Most vehicles tend to lose their value as they age. If you own or have recently bought a used car, there's a good chance that it could be worth less than the annual cost of keeping your collision and comprehensive insurance coverage. If your car's book value is worth less than the combined amount of both coverage options multiplied by 10, then you'd be better off removing those options.

4. Your Credit Score

Insurance companies don't just look at driving histories or zip codes to determine what kind of risk a driver represents. They may also take your credit worthiness into account when generating quotes for a new or renewing insurance policy.

In many states, your credit score can play a big role in determining your auto insurance rates. Insurance companies may use your FICO score to predict the likelihood that you'll file a claim at some point. According to Consumer Reports, California, Hawaii and Massachusetts prohibit insurers from using these practices to set rates.

High credit scores are often equated with fiscal responsibility, which also translates to more responsible driving behavior. Meanwhile, drivers with lower credit scores are often seen as more likely to file claims, resulting in higher-than-normal rates.

Improving your credit score could be the key to lowering your auto insurance rates. This is often as simple as paying your bills on time and making sure you don't have any negative items on your credit report.

To learn more about your options and maybe get a lower insurance rate, visit resources like http://www.collinginsurance.com/. 


About Me

Understanding Insurance Terminology

After we purchased our first home, we realized that it might be a good idea to evaluate our insurance coverage. Although we had purchased homeowners insurance before, we had never owned a policy as large as the one we would need for our new place. Also, our new home had a trampoline and a swimming pool, which made us worried about liability. To iron out the details, I decided to meet with our insurance agent. We talked about things like monthly premiums, coverage limits, and deductibles, and it was incredible to learn more about the terminology. This blog is designed to help you with the same types of questions.