Auto insurance rate quotes are a convenience offered to their clients by most automobile insurance companies, either in conversation with an auto insurance sales broker or as part of an online sales pitch. How accurate are online auto insurance quotes? That depends upon how accurate the information prospective clients present with. The Vehicle Information Number (VIN) of the auto the client hopes to insure is important of course, but so is information about the number of years the prospective client has been driving, the number of accidents he or she has been involved with, his or her credit rating etc. The most critical piece of information, as far as price is concerned, is what package of auto insurance coverage the client wants.
Quotes are meant to give clients a general idea of what they will pay for auto insurance. A client’s quote is never final until he or she purchases a policy. In fact, it is quite common for there to be some divergence between the quoted price of the automobile insurance and the final price of the policy.
What Determines Automobile Insurance Rates?
What determines automobile insurance rates? A number of factors, according a 2009 study conducted by the insurance quote website Insurance.com:
Geography
One of the determinants that has the biggest effect on your premiums? In most states, it’s your zip code. If you live in a neighborhood where theft, vandalism and other property-related crimes are high, there’s a higher probability that your automobile will be broken into. If you live in a neighborhood where traffic is congested, there is a higher probability that your automobile will be involved in a collision. Auto insurance companies determine their premiums on the basis of risk, and probability determines risk.
Measuring a driver’s risk factor depends upon measuring characteristics common to drivers who have filed claims with that company in the past. If the company compares 10,000 drivers who live in one zip code with 10,000 drivers who live in another, and determines that more claimants live in the first zip code, those drivers will find themselves charged a higher rate.
In November 1988, the state of California passed a proposition deeming this “zip code profiling” unfair and discriminatory: Those zip codes whose residents were being charged higher premiums turned out to be zip codes whose populations were predominantly African American or Latino. As of 2011, California remains the only state that has outlawed the zip code rating scheme.
Mileage
The miles you put on your car in any given year will have a substantial effect on the amount you pay for its insurance premiums. It’s easy to see why: The more you drive, the higher the probability that you will get into an accident. Therefore drivers with a longer work commute will end up paying more for insurance.
This is a time-related function however. Generally insurance costs more for a brand new car than it does for a car with 50,000 miles on it, and the more your vehicle cost, the higher the rates you will pay to have it insured. This is because of the replacement costs of a new automobile. After you have owned the car for some period of time, premiums will begin to correlate with the miles you have actually driven, and one of the questions you are typically asked when you are pricing premiums is how many miles you anticipate driving in a given year.
Time of Day You Drive
Accidents are more likely to occur at certain times of the day. Unsurprisingly, 76 percent of all accidents happen during commute hours or between 7am and 9am in the morning and between 4pm and 6pm in the afternoon.
At least one insurance carrier has taken advantage of this statistic to offer significant premium savings to motor vehicle operators who avoid driving during those time. However they are not going to take your word for it. Progressive is prepared to offer discounts to drivers based on an analysis of their driving habits over a 30-day period. In order to analyze their driving habits, Progressive plugs a small transmitter device into their car computers which collects information about the time of day they drive and the number of hard brakes – a sudden deceleration of seven miles an hour – they sustain. Too many hard brakes is taken as an indicator that the car is tailgating or that the driver is playing inadequate attention to his or her surroundings.
Progressive’s Snapshot Pay As You Drive Program, as the transmitter device plan is called, can save drivers up to 30 percent on their standard policies.
Vehicle Classification
Price, model, make and year – all of these factors will have an effect on the premiums you pay. Newer cars are more expensive and as noted above, more expensive cars entail higher costs to the insurance company should they need to be replaced.
The owners of certain types of high performance sports cars or modified cars may find it impossible to qualify for standard or preferred insurance policies at all. The only option for owners of such vehicles may be non-standard policies, priced considerably higher than standard policies because of the probability that insurance companies will have to pay out on these policyholders.
Demographics
Your age, sex, marital status, profession and educational attainments are all considerations insurance companies take into account when they price your premium. Again, it’s a matter of calculating the risks: Male drivers have more collisions than female drivers and married people are involved in fewer accidents than unmarried people.
Some occupations have their own insurance companies: State Farm Insurance, for example, was founded in 1922 as a mutual insurance company owned by its policyholders, all of whom were farmers
People at either end of the age spectrum pay higher premiums: younger drivers, because they have less actual experience on the road making driving decisions and older drivers, because their reflexes are slower. The policyholder likely to be paying the highest premiums? An unmarried male driver under the age of 35. Similarly, all other things equal, the policyholder with the lowest premiums will be an older, married female driver.
Number of Drivers and Vehicles
The more drivers and vehicles you cover on a single policy, the higher your premiums will be. For obvious reasons – two cars, or two drivers, doubles the probability that the company will have to pay out on a claim.
Credit Rating
Insurance companies assume that individuals with higher credit ratings are more prudent and cautious than individuals with lower credit ratings. In 2004, the Texas Department of Insurance performed its own study to see if this assumption was true. What they found was that the ten percent of Texas auto insurance policyholders with the lowest credit ratings were one and a half to two times more likely to file a claim than the ten percent of Texas auto insurance policyholder with the highest credit ratings – or, in other words, that there was a negative correlation between high credit scores and the number of claims a company was likely to have to pay out. All told, individuals with higher credit ratings were involved in 40 percent fewer accidents than individuals with lower credit ratings.
Since the economic downturn, however, Texas, Delaware, Louisiana, Montana, New Mexico and Illinois have adopted laws allowing individuals seeking insurance to request exceptions to credit-based insurance ratings, arguing that “extraordinary life circumstances,” such as the temporary loss of employment for three or more months, the death of a spouse or a parent or a child, divorce or identity theft, had affected their credit scores. Other states are expected to follow suit.
Even if you don’t live in a state that doesn’t have an explicit law on its books allowing consumers to ask insurance companies for this kind of exception, most insurance companies have an internal review that allows you to get a special dispensation if you explain why you’re subject to financial difficulties. And if you’re going through a private agent, it never hurts to let the agent know about the special circumstances that have affected your credit before you ask for quotes.
Vehicle Safety
Certain features such as anti-lock brakes or an anti-theft system, that can protect your vehicle from accidents or property damage, will shave dollars off your insurance premiums. What are some of the safety features that can bring down your costs?
• Air bags:
According to the Insurance Institute for Highway Safety, nearly 25 percent of all motor vehicle passenger deaths in 2009 were caused by side-impact crashes. Seventy percent of those deaths might have been avoided through the use of side air bags. Both Geico and State Farm offer significant discounts for vehicles equipped with air bags.
• Anti-lock Brake Systems (ABS)
Anti-lock brake systems prevent wheels from locking up and are used to maintain directional control in situations where drivers are forced to brake quickly. This can make all the difference between life and death when a driver is negotiating the type of icy, snowy or wet road where traction is lost and cars spin out. There are two types of ABS: Standard cars and minivans generally have four-wheel systems that prevent the brakes from locking up, while most trucks and SUVs have rear-wheel-only ABS. Many insurance carriers offer significant discounts to drivers of ABS-equipped cars: Geico, for example, will discount ABS-equipped cars a full five percent on the collision portion of a policy.
• Electronic Stability Control
Electronic stability control, also referred to as dynamic stability control or traction control, is a relatively new feature that uses a microcomputer and a system of sensors to prevent sideways skidding, spinouts and loss of control. According to the Insurance Institute for Highway Safety, motor vehicles equipped with electronic stability controls are involved in 15 percent fewer accidents.
Deductible
When you are willing to pay a deductible, what you are telling your insurance carrier is that you are willing to assume a portion of the risk that you will not get involved in an accident. The insurance company will reward you by offering you lower monthly premiums.
Installment Plans
Although paying your insurance through a monthly installment plan may offer tremendous convenience to a driver on a tight budget, it’s not the way to save money in the long run: Installment plans come with installment fees which will add up over the course of a year. Most insurance carriers allow policyholders to choose among one month, quarterly or six-month installments. If you must fall back on the convenience of installment payments, try to keep the number of installment payments you make as few as possible.
Your Driving Record
Your driving history has a tremendous impact on the price you pay for auto insurance premiums. Most state departments of motor vehicles track driving records through a system that assigns a certain point value to parking tickets, moving violations, driving under the influence, at fault accidents and other types of driving infractions. When a court finds you guilty of one of these violations, the infraction’s point value is added to your driving record.
Auto insurance carriers have the legal right to review the driving history of any motor vehicle operator who applies for insurance with them. They will be looking to see first whether the driver meets the company’s minimum standards for insurability, and second to evaluate that driver’s risk probability based on the number of points he or she has collected. There are ways that the driver can reduce the number of points he or she has accumulated; most often this involves participating in a court-mandated Defensive Driving Course designed to reacquaint drivers anew with the dangers of tailgating, bad weather, and driver distractions inside and outside the vehicle. Many states offer online versions of these Defensive Driving Courses.
Every insurance carrier has its own methods for determining risk so the number of points a driver has accumulated will not have a standard effect on the amount of a premium. Most insurance carriers sponsor some variant of the Safe Driver Insurance plan devised by the Insurance Services Office (ISO) to apply point penalties to auto insurance policies.
Once an insurance carrier issues an auto insurance policy to you, theoretically that company has the right to review your driving record at any time. Reviews, however, most likely will be confined to:
• Your initial application for coverage
• Any application to change the terms of your coverage
• The addition of a hitherto uncovered motor vehicle to an existing policy
• When your policy comes up for renewal
If negative information is uncovered during these periodic reviews, it is very likely you will see a rise in the amount of the premium you pay towards the coming year’s insurance coverage.
Following a driving violation that results in the accumulation of significant points, it usually takes insurance policies three years to return to the rates offered the driver before the violation.
Most insurance carriers also offer some kind of program to award safer drivers with significant good driver discounts.
Policy Exclusions
There are certain instances under which an insurance carrier will not pay for damage to a car. Exclusions are generally invoked when they involve liabilities that are beyond the insurance company’s ability to control and would surpass the company’s ability to pay.
Exclusions will be addressed in the fine print of your automobile insurance policy. Exclusions exist to keep the cost of providing auto insurance affordable, to prevent instances of duplicative coverage, and to prohibit coverage for losses that violated public policy (for example: losses due to intentional malicious mischief on the owner’s part.)
Some examples of policy exclusions include:
• Damage deliberately caused by the policyholder or any driver to whom the policyholder has given permission to access the car.
• Wear and tear to tires. Some companies will pay for wear and tear to vehicle parts other than tires.
• Injuries due to a nuclear weapon or a civil war.
In some locations, certain types of policy exclusions exist that do not exist in other locations. In San Francisco, for example, it may be difficult to get coverage for earthquake damage to your car.
Insurance Company’s Terms and Conditions
Every insurance carrier calculates risk in a different fashion. It’s this risk formula that determines what the company charges policyholders, and so a policy with the exact same coverage can cost very different amounts among insurers. All companies use the factors listed above but they weight them differently. That’s why it’s important to shop around when you’re purchasing automobile insurance.
The company offering the lowest premium rates is not always your wisest choice when you’re buying automobile insurance. There are a number of other factors you should consider as well. Do you want to buy from a local or national insurer? While most local insurance agencies are branches of national chains, insurance companies like Progressive, Geico and Esurance do not maintain local offices.
Once you have purchased automobile insurance, don’t make the mistake of assuming that your contract with this company is set in stone. Pay close attention during your first policy period to everything from customer service to whether your rates go up in an unexplained fashion. These considerations will help you decide whether you want to purchase automobile insurance from this carrier again.
