Insurance companies ask a lot of questions while going through an application. Some of them obvious, some of them not so much. I saw this question come through twitter and thought I'd take a few paragraphs to hash this one out.
@Jodie_Roberts: Why do car insurance companies need to know your marital status?
This question is necessary for many reasons. First, marital status makes a difference in the rate you qualify for. Maried couples receive better rates than single folks. This is due to a variety of reasons. Married couples drive less than single folks. Think about it. If there's 2 drivers in a house, husband and wife, chances are there's only one trip to the grocery store each week and one car out running errands on the weekends. Conversely, a house with two roomates tend to make more separate trips. By virtue of bringing down the number of road miles, the possibility of a claim dips as well.
Secondly, marital status makes a difference because of how claims are paid out. Liability on a car insurance policy does not pay for injuries to household resident relatives. So let's take an example. If the husband is driving and causes an accident in which his wife, as a passenger, is injured, the liability coverage on the policy will not pay for the wife's injuries because she is a household resident relative. Sinsce liability coverage is designed to protect you from being sued by the not at fault party, it will not cover injuries to your spouse because spouses cannot sue each other.
Now think about this example, but instead of a married couple. It's an engaged couple that lives together. If one driver causes and accident and injures the other person. The passenger can sue the driver because the marital status does not prevent them. So with this being known, married couples are not going to file a claim for this type of loss because they can't. Henceforth the rate they are offered is lower than just two people living together, because the possibility of a claim is lower.
There are plenty of other things in insurance that work in a similar matter. If you questions on any of them please contact me.
Tuesday, February 16, 2010
Friday, February 12, 2010
Why did my rate increase?
I saw this question come up on twitter today. It's not an unusual one:
@SaraMorrison: "Why did my car insurance go up when I haven't had any accidents or tickets and my car has only gotten less valuable?"
There's a few reason for this. First, it's important to remember what insurance is at a very basic level. The simplest definition I can give is insurance is a transfer or risk. Ok, so where does it transfer from and who does it transfer to? In @SaraMorrison's case, she's in California. When you enter into an insurance contract in California, this is the deal you make with the company. I'm going to pay company X for insurance, and in exchange for my money, if I cause an accident the company will pay for the damage that I've done to the other party, at a minimum of $35,000. Not only will they pay the $35k, but if I'm actually sued they'll pay the legal fees to defend me as well. In most insurance policies the amount of liability coverage you have is far greater that the $35k, putting even more of a burden on the insurance company than this example.
So how can the insurance company afford to potential pay the $35k? They're looking at drivers that share similar characteristics and with great accuracy, predicting the probable cost of a future claim. Are you a married female in your 30's with a mini-van in suburbia? Great, you're going to get a super low rate. Why? Because most married females in their 30's with a mini-van parked in the 'burbs cause very few accidents. So that class of drivers pays less then most other.
The trick to finding a low rate for insurance, regardless of the class you're in, is to find the insurance company that has a favorable loss ratio for your class. This is why companies charge different rates for the same person. If Company X insures 1000 corvettes and 900 of them have filed a claim, then regardless of everything you have going for yourself, if you drive a Corvette you're going to pay more with Company X. I think that covers us for class.
On to part B, why does your insurance rate not go down with the value of your car? You have to remember that the reason insurance is required, and why you should buy it even if it wasn't the law, is because of the liability coverage. Liability is the coverage that pays for the damage you cause to the other driver. The cost for the insurance company to provide you with liability is not impacted by the value of your car. What does impact the cost of your insurance based on car value is the comprehensive and collision coverages.
This is where it gets tricky. First, the easy part. Most accidents do not result in a total loss. So almost never is the insurance company going to pay a $20,000 collision claim on a $20,000 vehicle. Because of this, it doesn't matter if i'm driving a $60,000 Escalade or a $15,000 Focus chances are the company is never going to come close to paying for a total loss. But, if both of these cars are involved in a fender bender, the labor rate is the same. You're only looking at a minor difference in the cost of parts.
The second part of this equation goes back to our conversation on rating classes. There is a good possibility that the collision coverage on a vehicle will go up when the vehicle is 2-6 years old vs. if it is brand new. The reason for this, is the majority of younger drivers that cause most accidents, are not out driving brand new cars. They simply can't afford to. So the class of driver that's driving a brand new car, is somebody a bit older and higher up on the socio-economic ladder. All those new cars are experiencing very few losses because the drivers are much better. But, once the car depreciates in value and becomes more affordable to a younger, riskier class of driver, the frequency of accidents and cost to settle claims on the car go up.
So which vehicles are the least inexpensive to insure? It's going to vary by company, but a good way to figure this out is take a poll of high school students. Ask them which cars they would like drive. Next, go pick out any car not on their list.
Leave a comment or ask a question.
@SaraMorrison: "Why did my car insurance go up when I haven't had any accidents or tickets and my car has only gotten less valuable?"
There's a few reason for this. First, it's important to remember what insurance is at a very basic level. The simplest definition I can give is insurance is a transfer or risk. Ok, so where does it transfer from and who does it transfer to? In @SaraMorrison's case, she's in California. When you enter into an insurance contract in California, this is the deal you make with the company. I'm going to pay company X for insurance, and in exchange for my money, if I cause an accident the company will pay for the damage that I've done to the other party, at a minimum of $35,000. Not only will they pay the $35k, but if I'm actually sued they'll pay the legal fees to defend me as well. In most insurance policies the amount of liability coverage you have is far greater that the $35k, putting even more of a burden on the insurance company than this example.
So how can the insurance company afford to potential pay the $35k? They're looking at drivers that share similar characteristics and with great accuracy, predicting the probable cost of a future claim. Are you a married female in your 30's with a mini-van in suburbia? Great, you're going to get a super low rate. Why? Because most married females in their 30's with a mini-van parked in the 'burbs cause very few accidents. So that class of drivers pays less then most other.
The trick to finding a low rate for insurance, regardless of the class you're in, is to find the insurance company that has a favorable loss ratio for your class. This is why companies charge different rates for the same person. If Company X insures 1000 corvettes and 900 of them have filed a claim, then regardless of everything you have going for yourself, if you drive a Corvette you're going to pay more with Company X. I think that covers us for class.
On to part B, why does your insurance rate not go down with the value of your car? You have to remember that the reason insurance is required, and why you should buy it even if it wasn't the law, is because of the liability coverage. Liability is the coverage that pays for the damage you cause to the other driver. The cost for the insurance company to provide you with liability is not impacted by the value of your car. What does impact the cost of your insurance based on car value is the comprehensive and collision coverages.
This is where it gets tricky. First, the easy part. Most accidents do not result in a total loss. So almost never is the insurance company going to pay a $20,000 collision claim on a $20,000 vehicle. Because of this, it doesn't matter if i'm driving a $60,000 Escalade or a $15,000 Focus chances are the company is never going to come close to paying for a total loss. But, if both of these cars are involved in a fender bender, the labor rate is the same. You're only looking at a minor difference in the cost of parts.
The second part of this equation goes back to our conversation on rating classes. There is a good possibility that the collision coverage on a vehicle will go up when the vehicle is 2-6 years old vs. if it is brand new. The reason for this, is the majority of younger drivers that cause most accidents, are not out driving brand new cars. They simply can't afford to. So the class of driver that's driving a brand new car, is somebody a bit older and higher up on the socio-economic ladder. All those new cars are experiencing very few losses because the drivers are much better. But, once the car depreciates in value and becomes more affordable to a younger, riskier class of driver, the frequency of accidents and cost to settle claims on the car go up.
So which vehicles are the least inexpensive to insure? It's going to vary by company, but a good way to figure this out is take a poll of high school students. Ask them which cars they would like drive. Next, go pick out any car not on their list.
Leave a comment or ask a question.
Wednesday, February 10, 2010
Smooth Sailing... eh-hem Driving
Just a short post on how to be zenful with your car insurance company. A short twitter conversation today inspired me to remind/notify everybody, just how important these two things are.
One, pay your bill on time/early and two, ALWAYS maintain coverage.
Because car insurance is a large financial contract, even the smallest policy is a $20,000 liability for an insurance company, it is unlike any other bill/product you have. If you're late on the cable bill your cable company isn't really out any large or meaningful expense if they continue to provide you service for a week or month or two. But, if you're not up to speed on your insurance, and you have an accident, the insurance company is out tens if not hundreds of thousands of dollars. This is why most companies do not provide any or very little lieniency with their billing. Paying the bill on time allows the insurance company to provide you with smooth, uninterupted service. So if you have to make a change to the policy, it can be done quickly and efficiently as long as there is proper equity on the policy.
Maintaining coverage all the time will give you the same benefits of having your bill paid on time. The biggest benefit to the consumer comes in the form of a rating factor. Like it or not, insurance companies use your insurance history as a rating factor. Customers who maintain insurance all the time are less expensive to administer and service, and are less likely to file claims. If you're thinking about switching companies for any reason, be sure to secure new coverage prior to canceling your current coverage. Using an independent insurance agency is a fast and easy way to shop for insurance. Independent agents represent numerous companies and can give you a quick snapshot of your insurance market.
If you want to discuss rating factors, or any insurance topic, leave a comment or contact me anytime.
One, pay your bill on time/early and two, ALWAYS maintain coverage.
Because car insurance is a large financial contract, even the smallest policy is a $20,000 liability for an insurance company, it is unlike any other bill/product you have. If you're late on the cable bill your cable company isn't really out any large or meaningful expense if they continue to provide you service for a week or month or two. But, if you're not up to speed on your insurance, and you have an accident, the insurance company is out tens if not hundreds of thousands of dollars. This is why most companies do not provide any or very little lieniency with their billing. Paying the bill on time allows the insurance company to provide you with smooth, uninterupted service. So if you have to make a change to the policy, it can be done quickly and efficiently as long as there is proper equity on the policy.
Maintaining coverage all the time will give you the same benefits of having your bill paid on time. The biggest benefit to the consumer comes in the form of a rating factor. Like it or not, insurance companies use your insurance history as a rating factor. Customers who maintain insurance all the time are less expensive to administer and service, and are less likely to file claims. If you're thinking about switching companies for any reason, be sure to secure new coverage prior to canceling your current coverage. Using an independent insurance agency is a fast and easy way to shop for insurance. Independent agents represent numerous companies and can give you a quick snapshot of your insurance market.
If you want to discuss rating factors, or any insurance topic, leave a comment or contact me anytime.
Monday, February 8, 2010
Price vs. Value and Homeowners Dwelling limits
I was watching an insurance video blog earlier today at http://www.atlantainsurancelive.com/home/atlanta-insurance-live-33-home-insurance-tip-for-the-first-time-homebuyers/ . This inspired me to do a quick post about price vs. value in regards to home owners insurance, and why it's so important that you're buying an agent not a company. This is why I recommend doing business with an independent agent. Independent agents have access to several companies, not just one. They can give you advice on which companies offer the best coverage and billing options for your situation.
For first time home buyers what I'm about to write isn't nearly as important for homeowners that have been in their house for a few years. I get people shopping for insurance all the time that want to compare what their paying currently to what else is available. With car insurance this is definitely the way to go, but this can be a dangerous game with homeowners insurance.
If it's been a few years since you've adjusted the amount of coverage you have on your home, it's going to be nearly impossible to find a lower rate than what you're paying currently. When shopping for home insurance, you have to ask yourself, "do I want to find a better price than what I have currently, or do I want better/more appropriate coverage than what I have currently?" Better Value.
Before you begin the process of calling around. Start by calling your current insurance agent and make sure that the coverage you bought years ago is still appropriate today. Did you call your agent last spring when you added the deck to your house or renovated the kitchen? Make sure that the coverage you have currently is relevant to compare against or you're going to waste a lot of time.
For first time home buyers what I'm about to write isn't nearly as important for homeowners that have been in their house for a few years. I get people shopping for insurance all the time that want to compare what their paying currently to what else is available. With car insurance this is definitely the way to go, but this can be a dangerous game with homeowners insurance.
If it's been a few years since you've adjusted the amount of coverage you have on your home, it's going to be nearly impossible to find a lower rate than what you're paying currently. When shopping for home insurance, you have to ask yourself, "do I want to find a better price than what I have currently, or do I want better/more appropriate coverage than what I have currently?" Better Value.
Before you begin the process of calling around. Start by calling your current insurance agent and make sure that the coverage you bought years ago is still appropriate today. Did you call your agent last spring when you added the deck to your house or renovated the kitchen? Make sure that the coverage you have currently is relevant to compare against or you're going to waste a lot of time.
Saturday, February 6, 2010
Drivers that switch save an average of...
I’m sure you’ve heard that tagline in an auto insurance ad before. But which company was it for? I’m probably going to get multiple answers for this one, and they’ll all be right. How is that? How can 5 different insurance companies all advertise that everybody that comes to them saves? The amount of savings is only calculated based on the drivers that actually switched, not that didn’t. If I could save you $400 a year on insurance you’d switch too. But if I’m $2 more per year you probably won’t.
The savings numbers being reported are only based on customers that actually change companies, not all drivers that just get quotes. If one insurance company was always the least expensive, then there would probably only be one insurance company, but there’s not. In fact there are hundreds, if not thousands of insurance companies you and I have never heard of.
There are plenty discussions we could have that stem from these points. Price vs. Value and buy the Agent not the company, come to mind first. If you’re looking for a little more depth, try giving this a read; http://www.ryanhanley.com/2009/09/28/you-need-an-independent-agent/
If you want to discuss price or coverage give me a call or send me a note.
The savings numbers being reported are only based on customers that actually change companies, not all drivers that just get quotes. If one insurance company was always the least expensive, then there would probably only be one insurance company, but there’s not. In fact there are hundreds, if not thousands of insurance companies you and I have never heard of.
There are plenty discussions we could have that stem from these points. Price vs. Value and buy the Agent not the company, come to mind first. If you’re looking for a little more depth, try giving this a read; http://www.ryanhanley.com/2009/09/28/you-need-an-independent-agent/
If you want to discuss price or coverage give me a call or send me a note.
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