8/24/2012 2:11 PM ET|
6 secrets of car insurers
Ever wonder why you pay more or less than someone else for similar coverage? These factors could be making the difference.
Car insurance is something of an opaque industry. We know we have to pay the bill, but we may have no clue how the carrier arrived at that rate. Everyone criticizes the cable company for hidden fees, but at least they're on the bill. The hidden fees on your car insurance bill remain hidden -- a dollar amount is spit out and you're expected to pay, no questions asked.
Here are six pricing factors auto insurance carriers don't want you to know about:
1. It helps to be a woman
Our data show that women pay on average 12% less than men do. That means that over the course of a man's driving lifetime, he will pay an extra $15,000 on auto insurance. The reason is simple: Men drive more aggressively and therefore come calling with claims more often than women do.
2. Education matters
You don't have to read Shakespeare. You don't have to understand the practical applications of calculus. Even going to Harvard doesn't necessarily help. What is important is the level of education you have achieved. Some argue that it's discriminatory to charge those with lower education levels more for insurance, but the practice has withstood court challenges. To insurance companies, the more degrees the better. Someone with only a high school education pays slightly more than a person with a bachelor's degree, who pays slightly more than a person with a master's degree, and so on.
3. Your credit history can be the single biggest factor in your quote
Like them or not, your credit scores are key for insurers in determining how financially responsible you are. A checkered credit history raises red flags for carriers, who fear that you might not pay your bills. Some argue that charging those with less money more for insurance is also discriminatory, but courts have held up this practice, too. The exception is California, where it is illegal for insurers to factor in credit scores when determining a rate.
4. Carriers aim to just break even on your premiums
Like other financial institutions, insurance companies look to create capital from existing capital. In other words, they take your money and invest it in the hopes of making more money. Their biggest challenge is to attract your business in the first place, and we know that consumers are most concerned about a single issue: price. So carriers have to price their policies within an extremely competitive marketplace, while still protecting their interests by not pricing too low and thereby losing money when you make a claim. For this reason, actuaries hope to just break even -- balancing the amount of money you pay each month with the amount their data show you're likely to request in payouts -- then make their profits in interest.
5. Location is big
If you live in Louisiana, the state with the highest premiums in the country, and you're considering a move to North Carolina, you'll save on average $1,500 a year. A move from Washington, D.C., across the river to Virginia will save you an average of $50 a month.
6. You're most expensive to insure if you're young -- or old
The youngest drivers pay the most for insurance; premiums are generally highest at age 18 and decline steadily until the driver turns 25. In the eyes of carriers, drivers then enter "adulthood," during which premiums stay relatively flat for the next 30 years or so. Premiums inch up slowly from age 55 to 65 before jumping way up around age 75.
While insurers don't exactly hide these six things from you, they aren't forthcoming with the information, either. With insurance as with anything else, the best shoppers are armed with knowledge.
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I doubt that.
Actually, after that income is sifted through the accountants, it will 'seem' to break even.
Where is the protection for the individual like myself that has been driving for 60 years and I have never had a car accident or filed a claim as the driver of my vehicle. WHEREAND i REPEAT WHERE is our major discount from the money gussling car insureres. If I had 4 accidents they would be right there to increase my premium. How about the discounts----- You took my money all these years and now that I am 75 YOU have the gual to increase my premium with my accident free , claim free record???
That's right insurance rates rarely ever go down. Reasons #1 Fraud #2 unisured drivers #3 high cost of vehicle repairs. from an insurance agent.
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