One of the most common questions we receive on a day-to-day basis is, “Why is my auto insurance so expensive?”  If you live in the State of Michigan, I’m sure you have asked yourself this questions before.  There are many factors that play into the pricing structure of your auto policy, but in this article I will explain what the top 10 reasons are as to why your auto insurance policy is so expensive.

We often speak with insured’s and prospective clients about the coverage they have on their policies; All too often we find that people don’t really understand what coverage they have, thus, how can they understand why they are paying what they are paying?  The answer is simple; They can’t.  To truly understand why you are paying a premium you are, you need to understand what the coverage actually protects you for.  Below are the top 10 reasons why your insurance rate is so expensive and a detailed explanation as to how you can combat it.

 

  1. Cost of medical coverage

The most expensive portion of your auto insurance policy is the cost of your PIP or Personal Injury Protection.  Did you know that if you were involved in an auto related accident, you have coverage for the medical attention for the rest of your life?  There is no limit to how much this can pay.  Your auto insurance provider is responsible for up to the first $540,000 worth of medical coverage.  After that, the claim is assigned to the Michigan Catastrophic Claims Association, or MCCA.  The MCCA charges you a fee for each vehicle that you have insured.  Currently, that fee is over $200/year, per vehicle.  Once your claim goes to the MCCA, they pay out for the remainder of the insured’s life.  That part in and of itself is expensive; however, where it really starts to get magnified is when medical providers charge more for auto related accident care than they do other care.  How is this fair?  Currently, there is no fee schedule for how much medical care providers can charge the insurance company when they are administering care for auto related accidents.  For instance, if you go into the Emergency Room for a a broken arm, the cost to get an X-Ray of your arm will be lets say $100.  If you go to the Emergency Room for a broken arm due to an auto accident, that same X-Ray will cost well over $500.  This is a prime example as why the cost of your auto insurance is going up each year; Hospitals charging exponentially more for the SAME CARE!  This is the #1 reason why the cost of your auto insurance is so expensive!

       2.) Past Tickets and/or Accidents

Another factor playing into the cost of your auto insurance premium is your prior driving record.  If you have prior tickets/accidents, you will likely be paying more than you would if you had a clean driving record.  What does having tickets have to do with my insurance rates?  Someone who has, lets say speeding tickets, is at a greater likelihood to cause or be involved with an auto related accident.  The faster one is driving, the shorter time frame they have to make split second decisions and that can be the difference between being involved in an accident or avoiding one altogether.

In terms of accidents, there are different types.  You can be deemed not-at-fault or at-fault.  There is a large difference between how your insurance premium is affected if you are deemed at-fault or not.  If you aren’t at-fault the severity of the increase will usually be minimal.  However, if you are at-fault, there is a strong chance that you will be issued a surcharge on your policy.  That surcharge stays on your policy(Depending on your company) for 3-5 years.

       3.) Low Insurance Score

One of the heaviest weighted aspects of determining your insurance rate is your insurance score.  What exactly is your insurance score?  Your insurance score is the result of close to 300 different factors that are weighted by an algorithm.  It is extremely difficult to explain what it is, but it’s easy to explain what it’s not!  A common misconception is that your insurance score is the same as your credit score.  That is 100% false!  Your insurance score does  take into account information obtained from credit reports, but it is not a credit score rating!  Your insurance score takes into account your past pay history, claims history, and other factors.  The lower your insurance score, the higher your premium.  The higher your insurance score, the lower your premium will be!

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If you have been following the proposed legislation regarding Michigan’s No-Fault auto insurance, you have to be asking yourself, what does this really mean to me as a policy holder?  I’m here to spell out how the PROPOSED legislation will impact your coverage as well as your pocket book.

Immediately, the proposed bill would offer you a choice of coverage for you PIP(Personal Injury Protection)  This is the portion of your policy that covers medical costs that come from auto related injuries.  The bill is proposing an immediate reduction of 10% on the current Unlimited PIP package.  Currently, everyone has unlimited care for auto related injuries.  Under this new bill, the insurance companies would be able to offer the consumer coverage options regarding their PIP.  With these options, the consumer would be able to pick a MAXIMUM amount of coverage they would to be insured for.  Those options are $50,000, $250,000, $500,000, and Unlimited.  This could provide consumers with a significant savings on their auto insurance policies!

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I’m pretty confident that if you asked anyone who has ever owned a rental property you would get an overwhelming response that it’s not as lucrative or easy as they thought it would be. In fact, owning a rental property can be a major pain, and end up costing you a ton of money!

I certainly don’t mean to be a “Debbie Downer”, and I know that if it’s done right it can be lucrative, but from an insurance agent’s perspective, I don’t see a lot of people doing it right.

So you’re probably thinking, “Well Chris, you are an insurance agent. What do you know about real estate or rental properties? Why should I take advice from you?”

I’m not a real estate agent, and I don’t own a rental property. However, several of my friends/family/clients/co-workers own rentals, and because I insure a bunch of their properties, I’ve had a first hand account of the process, and I’ve learned what to do, and what not to do.

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I was recently asked this question by one of our Mid Valley Insurance and Financial clients, and thought I would share the answer here for our readers.

There are a lot of things that go into homeowners and auto insurance rates, one of them being credit. I’ve heard a lot of complaints from people who don’t like the fact that insurance companies use credit in their underwriting.

Some people have absolutely no idea that it’s used in the rate at all.

At the end of the day, there’s not much we can do about it though. Insurance companies have been using credit in their rates for decades, and that’s not likely to change.

By the way, insurance companies don’t pull your credit like a mortgage company or credit card company does. There is no negative impact on your credit as a result of an insurance company looking at it.

When I say “pull” what I mean is that the insurance company is doing what’s called a soft inquiry, which is not the same thing as having your credit pulled (hard inquiry).

When does credit play a role in insurance rates?
It’s important to understand that insurance companies don’t continuously check or monitor your credit. Usually, they only check it when you first get a quote and/or sign up with them in the very beginning.

This means that if your credit score increases (or decreases) your insurance company does not automatically know about it.

So, to my customers question of whether or not his increased credit score will lower his rates, the answer is not automatically.

What has to be done on our side as the agent is contact the carrier the insurance and ask them to do what’s commonly referred to as a “re-score”. This is when the insurance company can re-run the person’s credit (soft inquiry) to see if there is any positive bearing on the rate.

This isn’t something that the insurance company is going to let the agency do every single year, so it’s not worth even asking unless there has been a significant change in your credit score, and only you as the customer would know if that was the case.

If you’d like to get a better handle on your credit rating, it could be helpful to setup credit monitoring. We hope this was helpful! As always, leave us comment below if you have any questions.

Why do my auto insurance rates keep going up even though my car is getting older?  At Mid Valley Insurance and Financial, many of our clients ask this question so I would like to address it from a couple of angles.

First things first, even though it’s called car/auto insurance, it covers more than just your car. It should technically be called “auto-owners” insurance, similarly to how home insurance is actually called “home owners insurance”.

It’s important to understand that there are a lot of variables that go into insurance premiums, and with auto insurance, it’s no different.

The insurance company is much more concerned with you crashing into someone and causing them (or yourself) bodily harm, or death, than they are about your car. A car is a material possession which can be replaced.

A human life is not.

When is the last time you looked at your auto insurance policy?
If you look at it you’ll notice there are a lot of different coverages on your auto policy.

Bodily injury
Property damage
Un-insured motorist
Under-insured motorist
Medical Payments
Loss of Income
Funeral Expense
Loss of use
Rental Reimbursement

These are all things that you are covered for on your auto policy. How many of them have to do with your car?

None.

How many of them have a price next to them on your policy?

All of them.

Your car isn’t the only thing you’re being charged for on your policy
That’s because auto insurance covers far more important things than your car as mentioned above.

Let me re-phrase that: your car insurance rate isn’t just based on your car.

You’re not the only one…
It’s also important to understand that you are not the only person your insurance company insures. You are one fish in an ocean of other fish, sharks, and sea creatures, all who have different characteristics and risk profiles.

Insurance is all about spreading costs over a large number (risk pool) of people, which each person paying their fare share. That risk pool is constantly changing, and is impacted by a ton of different things, including the overall economic climate.

This means that you are sharing in the cost of millions of other people, many of whom may have poor loss history and/or credit.

That’s what insurance is though — sharing in the cost.

The next time your auto insurance rates go up, take a look at the big picture. Make sure you’re looking at ALL of the coverages, and corresponding rates.

Hope this helps!  If you would like to know more about Car Insurance be sure to visit our page dedicated to it.