Part of my job is spent answering questions; actually, a good part of my day is spent answering questions about insurance. I love answering these questions because it allows me to connect with my clients on a personal level. Here are two questions that I frequently get asked about why car insurance premiums go up.
“I thought when my car became older, my premiums would go down?”
This is one of the biggest assumptions in the industry, and I’d love to get my hands on the person that started this horrific rumor! There are many reasons why your car insurance will not go down as your car ages; here are just a few.
- The labor cost to repair hail damage on the roof of a 2001 Honda Accord is $60-$80 per hour. If it’s a 2012 Accord with the same damage the rate is still $60-$80 per hour. Yes, cars have more expensive items in them these days – LED lights, microprocessors, enhanced paint colors, heated and air-conditioned seats – but so many other criterions go into it. Accident rate and theft rates also play a part.
- Finding a part for an older vehicle may be difficult. Newer cars have VIN etching and immobilizers.
- Newer cars are safer to drive, harder to steal, and some can be more dent resistant and actually have frames that can take less time to repair.
“My premium should go down every year I remain ticket and accident free.”
Lately it seems that people don’t want companies to make money. Our government certainly seems to think that way. Insurance companies are in the business of making a profit. As an insurance agent, I don’t agree with them on many things, but I can’t fault them for wanting to stay in business. It’s just not realistic to assume a constant price decrease.
Do you expect the same from utilities, taxes, and rent? Even commodities (which insurance is NOT) increase in value.
Milk, bread, cereal – basically anything that isn’t a television or computer, falls victim to inflation. Insurance is especially affected by inflation. Everything that goes into repairing your vehicle or fixing your body costs more because of inflation. In fact, as the value of the dollar decreases in relation to world currency prices, we in America face price increases all the more.
Using the above logic, if you’re ticket and accident free for 10-15 straight years, and driving the same car, your premium would ultimately end up at $0.
It’d be nice if they only raised the rates for drivers with accidents and tickets, but they wouldn’t be in business long if that happened. Unfortunately, they need to spread risk out. Home insurance is no different.
With insurance of any type, there is no simple answer to “Why did my premium go up?”
Insurance in the 21st century is about as complex as it gets. There are multi-variant rating systems, credit scores, loss history, and a variety of other reasons your premium is what it is. Ok, I just geeked it up a bit.
I know you don’t want to hear this, but 2012 is going to be a tough year for your premium. In 2011 insurance companies paid $1.16 for every $1.00 collected. They paid over $100 billion in worldwide losses. In the U.S. they paid $36 billion in losses. In 2010 it was about $18 billion – that is a lot of negative profit, or in other words, insurance companies lost a lot of money
For any customer, I would offer this advice:
- Find a Trusted Choice Independent Agent at www.trustedchoice.com. A Trusted Choice agent will have multiple “A to A++” rated carriers you can get quotes from. Trusted Choice Independent Agents can price multiple carriers, which helps you get the best insurance package for your needs.
- Package your auto & home insurances together with the same carrier. This maximizes your discounts, and makes service and billing much easier. And if you are ever unhappy with a renewal premium or claims experience (it can happen), that agent has the ability to find you quotes from other carriers.
- Call your agent twice a year to talk about life changes. Often times I’m able to recommend changes to my client’s portfolio that saves them money.
Just about no one wants to pay for insurance, but we all know we need it. Having the right information makes it easier to understand and less costly.
If you have any questions, please leave a comment below. My next post will be about common questions I hear on home insurance.