11/7/2012 8:45 PM ET|
How youthful errors affect insurance
Risky behaviors you may have tried when you were younger -- such as drinking or reckless driving -- may not result in higher premiums.
Most people manage to shed many of their bad habits when they leave adolescence. But if you keep smoking, spend too much time on the couch, drive badly or pay your bills late well into adulthood, many types of insurance could get more costly.
Insurance companies base their decisions to whether to insure you and how much they charge you on factors that vary according to the type of policy. For example, while home and car insurance underwriters typically take your credit history into consideration, others, such as life insurers, rarely do. Health issues have a greater impact on life insurance rates.
The good news is that your past behaviors aren't likely to affect your current insurance rates unless you continue them into your adult life. The bad news is that the health-compromising habits you still indulge in can sometimes mean hefty hikes in premiums.
One expensive habit many people start in their teen years is smoking.
While smoking rates among teens have dropped over the past decade, the steep rate of decline from 1997 to 2003 has slowed considerably, according to a recent report by the Centers for Disease Control and Prevention. Nearly 30% of high school boys and 18% of high school girls in 2011 used some form of tobacco. More than 8% of middle school males and nearly 6% of middle school females did so in 2011.
Quitting smoking is a good idea at any age, but the sooner, the better, when it comes to insurance rates.
"Smoking absolutely raises your life insurance premiums," says Maureen Leydon, vice president and chief underwriter for MetLife in Boston. "Depending on your overall risk profile, your rates could more than double. If you have other health risks in addition to smoking, your rates could go up even more."
Jeff Reinig, the head of personal lines products for the central zone of Farmers Insurance in Los Angeles, says that his company offers nonsmokers a discount on home insurance.
"Not smoking is looked at as indicating better behavior, so we give a small discount of less than 5% to nonsmokers," says Reinig. "We used to have a nonsmoking discount on auto insurance, too, but we don't offer that anymore, because not only do fewer people smoke, but studies have shown that other distractions are deemed more likely to cause an accident than smoking."
Bad driving habits
If you have driving tickets and are accident-prone, your life insurance premiums could increase along with your auto insurance costs. Reinig says that your car insurance rates can go up by 10% to 100%, depending on the kinds of citations you get and their frequency. He says serious citations, such as drunken driving, result in the biggest increases.
If you have an accident, the most important factor affecting your auto insurance rate will be which driver was at fault.
"If the accident was not your fault, you may not have to pay a higher rate at all or possibly a nominal rate increase up to 20%," says Reinig. "The severity of the accident won't impact your rate, but if you are at fault your premiums could go up anywhere from 10% to 100%. The more recent your accident is, the more expensive your rate will be, especially if you have had more than one accident."
Leydon says moving violations or accidents can increase your life insurance premiums, because anything that can lead to premature death is factored in to determine your rate.
"The amount of the increase depends on the number of violations or accidents, the severity and how recent they are," she says. "A DUI will typically increase your life insurance premium for term life insurance at $2.50 or $3.50 per $1,000 of coverage."
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Bad credit history
The impact of a bad credit history or even bankruptcy is less clear-cut, but it can influence your premiums on your auto, home and life insurance policies. (See "Credit scores and insurance: If you don't succeed, try again" on Insurance.com.)
Life insurance premiums won't necessarily rise, but you could be turned down for a policy if the insurance company suspects that you cannot make the payments, Leydon says.
Reinig says that bad credit has less of an impact on auto insurance rates than having multiple accidents.
"In theory, your credit history is a proxy for your behavior," he says. "If your credit is bad, an insurance company thinks you are more likely to make a claim."
The amount of additional premium you could pay for auto insurance or home insurance varies widely according to the severity of your credit problems.
Unhealthy eating and poor exercise habits
It also pays to stay in shape.
"We look at your height and weight as well as other factors, but our definition of overweight may be different from a medical diagnosis. We also look at the potential for other risk factors that come with being overweight such as cardiovascular issues and Type 2 diabetes," says Leydon.
She says that a healthy 45-year-old would pay about $654 annually for a 20-year term life insurance policy. The rate increases in increments if a policyholder is overweight. Depending on how much he or she weighs, the rate jumps to $769, $989 or $1,359 -- more than double the premium paid by the healthiest policyholders.
Letting coverage lapse
Reinig says late payments and lapsed policies will affect both your auto insurance and your home insurance.
"On your auto insurance, if you are more than 30 days late, your premiums could go up 25% to 50%," he says. "If your policy lapses and you are driving uninsured, that's considered a big risk, and your premiums could go even higher."
For home insurance policies, the length of the lapse in coverage due to late payments will affect the increase in your rate.
"Generally, the longer the lapse, the more likely your policy will be considered new business, so your policy would require new underwriting," says Reinig. "You would lose any discounts for continued insurance coverage or for a lack of claims, so you risk your insurance premiums going up by as much as 20%."
Life insurance policies have a built-in grace period, says Leydon, so typically you can reinstate your policy by paying your back premiums.
"Depending on how long the insurance has lapsed, you may be asked some health questions just to make sure nothing has changed," she says. "Your premiums won't go up if your policy is reinstated."
More from Insurance.com:
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I have never had a ticket or accident in 24 years of licensed driving. There were times in my life that I did not own a car. When I finally purchased a vehicle my insurance rates were high for 6 months due to the lapse in insurance coverage. Do they just assume I drove uninsured? I didn't, I took the bus or walked. Nothing like being punished for saving money.
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