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How are auto insurance rates calculated? Factors such as your age, education, occupation, location, type of car, tickets and accidents, possibly credit rating, and more can drive your rates up or down.
What is the average cost of auto insurance? (how is rate calculated)
Insurance companies take into consideration all sorts of factors to help decide how much you're going to pay for your insurance, such as:
As we get older, we also build more credit history that insurance companies may take into consideration (if your state's laws allow them to). With a higher credit score we're seen as being more financially responsible which typically means you get better rates! It does work both ways so if you have a lower score you may end up paying more on your insurance premiums. Don't think that shopping your insurance will hurt your credit. Even though it's taken into consideration, it's what is called a "soft pull" and won't actually show up on your credit report. It's very similar to how companies like Lifelock or Credit Karma can access a view of your credit to help monitor for you, but doesn't have a negative effect on the score.
How does my employment impact my rate?
As much as I wish being an insurance agent gets me the lowest rate on my auto insurance, it doesn't - but it does help. What you do for a living can make a difference in the discounts you get from your insurance company. Some professions can be viewed as higher risk, leading to higher premiums. An Uber driver, for example, runs a much higher risk of getting into an accident and hurting someone else. A realtor that uses their car all day to drive clients to see homes, or a sales rep that calls on businesses all day, or a pizza delivery driver... you get the picture. Depending on what you do for a living, you might see an adjustment in what you pay for insurance.
Education can also play an impact on the potential discount you get with your insurance. The higher level education you have, the more savings you can see on your premiums. All the more reason to stay in school! You can use your savings on insurance to pay off those student loans.
Why is it important to maintain continuous insurance?
Most people switch their auto insurance about as often as they get a new cell phone. Shopping to make sure you get the latest iPhone doesn't really hurt you with your phone carrier, but when it comes to shopping insurance, you can bet that a new carrier is interested in how long you've been with your previous company. When a new insurance carrier sees you jumping ship every 6 months, they may not be as interested in you as if you had been with the same company for 5 years. If you've been with the same company for a long time, this means that you may get discounts with a new company because they're hoping that you'll stick around with them for just as long.
Same thing goes for how much liability you carried on your previous policy. Having more liability coverage not only ensures that you're better protected, but now you're telling insurance carriers that you have insurance because you see the benefits rather than keeping the minimum limits the state requires. Keeping the state minimum limits for liability is like having a checking account that you only keep adding enough money to avoid over drafting. If you were a bank, would you rather have the client with $500 or $50,000 in their account? Insurance companies use the same logic when you already carried higher liability limits on your previous policy. The higher your coverage limits on your previous policy, the better savings on your new policy.
I'm going out of town for 3 months, can I cancel my insurance and resume later?
Even if you have a period of time where you think you may not need your insurance, like if you go out of town for a few months, it's probably best to keep your policy active. Like we talked about before, how long you've been with your carrier can impact your rates in the future, and if you decide to cancel your insurance, you'll have a lapse when you restart your policy, which usually comes with a hefty price tag.
Cancelling your insurance also can hurt you when you drive other cars. Your insurance can come into play when you're driving your best friend's car or even when you're renting a van on your family vacation. Getting rid of your primary policy can hurt you in situations where you may have permissive use and need extra coverage to kick in.
Article written by: Agent: Michael Blanco
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