It used to be back in the 90s that every time you renewed your auto insurance, you would receive a renewal discount as long as you had no claims and no traffic tickets. This was especially true if you carried only liability coverage. Not so much anymore.
Today, in many states, vehicle owners can expect their insurance rates to increase at least a small percentage over the previous term. There are several factors that are affecting insurance costs and most companies are scrambling to keep up with loss ratios and other factors that determine the rates they offer.
Myths About Insurance Rates
Many insurance consumers try to use logic when anticipating what their insurance rates should be doing at each renewal, but unfortunately, their logic is based on myths.
- My Rates Should Go Down As My Car Ages: Sounds logical, right? Most consumers are under the misconception that as their car ages and the value decreases, their insurance rates will go down also. Actually, most accidents are not considered total losses, and since most cars are being repaired or repainted, the cost of the repairs is no less if your car is one-year-old or 5-years-old. Your insurer cannot buy five-year-old parts; they buy new ones.
- Since I Don’t Have New Tickets, My Rates Should Be Lower: Most insurance carriers go back three to five years when they review your driving record. The date that a violation is removed is based on conviction date, not the date you got the ticket. If you started your policy two or three years ago and had a couple of speeding tickets, they will remain on your driving record for three to five years.
- I’ve Been Driving 45 Years, Why Are My Rates Going Up?: It’s logical to assume that those drivers with the most experience will cost an insurer less than younger drivers. Unfortunately, most insurers start increasing rates for drivers once they hit age 65. Auto accident statistics indicate that seniors cause more at-fault accidents than drivers who are age 25 through 65.
- I’ve Never had an Accident so My Rates Should Go Down: This also sounds very logical since your insurer has made a profit on your policy for years and years. The problem with this logic is that with most insurance policies, the majority of the premium is based on your liability coverage, not necessarily the comprehensive or collision coverage. This means that your liability rates (pays for injuries you cause in an at-fault accident) are based on the cost of health care that you may be liable for. As you know, costs for health care go up every year, not down.
For consumers that buy the minimum coverage and decline all the optional coverages, rates may appear to be somewhat stagnant. The reason for this is that the insurer has very little risk to cover with minimum coverage policies. But, minimum coverage policies are likely to leave you paying significant expenses out-of-pocket and could lead to financial devastation. For vehicle owners who prefer to buy comprehensive protection with adequate limits to manage your risk, contact your broker at each renewal to see if there are alternatives available to help you manage your cost of coverage.