Ever Wonder How Every Insurance Company Can Save New Customers Hundreds of Dollars?
Auto Insurance isn't a commodity where every company provides you with a standard identical product at a standard identical price. Multiple factors impact your insurance premiums, and each company weights those factors differently. This means that every company will charge you a different rate for predominantly the same insurance product. And, as those factors change over time, so too will the insurance company that is best for you.
Every Insurance Company has an Ideal Customer
Insurance companies make their money by calculating the risk of insuring customers, managing that risk, and then charging customers a rate that will pay for losses associated with the risk (insurance pay outs), their other business expenses, and a reasonable profit. Not all insurance companies, however, have the same business model.
Differing Business Models = Differing Ideal Customers
Each insurance company has a different business model, a different level or risk they wish to take on, and a different ideal customer. In order to attract that ideal customer, the insurance company adjusts its pricing to be favorable to that type of customer.
One insurance company might have a business model that attempts to minimize risk by attracting low-risk drivers that are less likely to get in an accident. This company will charge relatively lower rates for low-risk drivers, knowing that the lower pay-outs will compensate them for lower income. At the same time, they'll try to avoid high-risk drivers by charging them higher rates than another insurance company might charge.
That other insurance company, however, likes the high-risk drivers. Their business model is to take on larger risks, but to be compensated by having higher income from the more expensive premiums these drivers pay. As a result, a high-risk driver would likely get a cheaper rate from this type of insurance company.
By finding the insurance company that likes you the best, you'll likely also find lower premiums relative to what other companies might charge.
Multiple Factors Impact Insurance
The formula for which insurance company likes you the best isn't as simple as just high-risk vs. low-risk drivers. There are a number of factors that impact insurance costs. These include who you are as a person, where you live and drive, the type of car you have, your history of making claims, and your credit score. Yes, your credit score impacts your auto insurance.
According to research by Consumer Reports, your credit score may be the biggest impact on the cost of your insurance. In fact, Consumer Reports found that a low credit score will drive up your insurance rates more than a poor driving record. According to the insurance industry, this is because people with low credit scores are more likely to be at fault for accidents and more likely to make claims.
Shop Around Every Year
At least three of the above factors change every year: your age, your car's value, and your credit score. Since the factors that impact pricing change annually, it's important that you shop for insurance on an annual basis. Each year you should call at least two other reputable insurance companies to get quotes on your exact insurance coverage. Make sure that you have your current policy so you can get an exact apples-to-apples comparison. Even seemingly minor changes in the policy will make a comparison worthless.
If you find that another insurance company is willing to insure you for less, you can use the competing quote to attempt to negotiate with your existing company. Call the company and ask for an adjustment to your policy premiums based on the competing quote. If they can't or won't beat the price (or at least match it), you can always vote with your feet and move to the new company.
You Don't have to Wait to Switch
A common misconception is that you are locked into a 6-month contract when you have a 6-month auto premium. This isn't true. You can always cancel the policy and you'll be refunded any pre-paid premiums for the remaining months. Depending on your state laws and your insurance company, a cancellation fee may apply. If so, check the cost of the cancellation fee against the savings you will receive. Even with the cancellation fee you might still come out ahead.
Major Changes Means Lots of Shopping
There are some major life events that should spur you to shop more than just a few policies. This is because those life changes mean a change in one of the major factors that influence your insurance. Whenever one of these life events happen, shop multiple insurance companies to see which is best for you.
Marriage/Divorce
Being married has a number of advantages, one being lower insurance premiums. Different companies offer varying levels of discounts for being married, so make sure to shop around when you get back from the honeymoon or the "single again vacation."
Driving-Age Children
Once your kids turn 16, your insurance rates will never be the same. Ask those who have children of driving age about their insurance premiums and get ready for a rant about how much insurance companies hate kids. Minimize the cost of your teenage drivers by finding an insurance company that hates your kids a little bit less.
Moving or Buying a Home
If you've moved recently, you need to shop insurance. Where you live has a major impact on your risk to an insurance company. Moving impacts the risk of crime, the type of traffic and roads you will encounter, the average cost of the car you might hit, and many other risk factors. Like all risks, these risks are 'valued' differently by each insurance company.
If you also bought a home, your insurance will be impacted in a very positive way. Not only are homeowners lower risk, but you can also shop around combining your homeowners policy and auto policy for even bigger savings.
Changing Jobs
Similar to moving, if you've changed jobs in the past year your car will be traveling different roads and be parked in a different place five days a week. Your job, however, might also give you a new discount off your premium. Professionals are less likely to cost the insurance company money, so many insurance companies will pass the savings along. And certain professionals like teachers, doctors, and lawyers, may get additional discounts.
Purchasing/Leasing a New Car
Another major factor in the cost of your insurance premiums is the cost of the car you're insuring. After shopping around to purchase or lease a new car, you should trigger a new round of shopping for new car insurance. Your new car may also change discounts you might get for safety features, anti-theft devices, and other factors.
Finally, your new car may not be liked by your current insurance company. Just like insurance companies have ideal drivers, they also have types of cars they like and don't like. Sports cars, trucks, tow packages, 4-wheel drive, and coupes are all types of cars that insurance companies will swipe left.
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