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.
- 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!
4.) Cost of repairing a vehicle
Have you noticed the cost of automobile repairs is constantly on the rise right now as well? That directly plays into the cost of your auto insurance. When you are involved in an accident and there is physical damage done to your vehicle, your insurance provider pays to repair the costs, if you have the applicable coverage. Well, the cost of repairing said vehicle has increased drastically over the course of the last 10 years. Vehicles nowadays are equipped with more and more technology and the cost to repair/replace that technology isn’t cheap. As the price to repair vehicles increases, so too does the cost of your auto insurance. The more the company has to pay out in claims due to the cost of repairs, the more your premium will increase.
5.) How far you drive to work one way
How far to work do you drive everyday? Why does that matter? The answer is quite simple, really. The longer you are on the road, the more likely you are to be involved in an accident. Think of it like this: Person A drives 1 mile to work and 1 mile home, every day. Person B drives 25 miles one way and 25 miles back home. Who has a higher likelihood of being in an accident? If all other factors are the same, Person B has a much higher chance of being involved in an accident. Insurance company’s are using more and more data in their rating systems. When you are getting quotes for your insurance, make sure you are honest about the daily commute. Company’s are beginning to ask more and more questions about where their insured’s work. The amount that you are on the road truly matters!
Can increasing or decreasing my deductible options really change my premium that much? Yes, yes it can. The more that you are willing to take on in terms of a deductible, the lower your premium will be. Why does having a higher deductible lower my premium? Think of it like this: If someone has a $500 deductible on their collision and they back into a pole and the damage is $750, there is a chance they turn in the claim. If they have a $1000 deductible, they can’t turn the claim in since it’s less than their deductible. See, it’s not just about the AMOUNT of money paid out on claims, but the frequency in which someone turns claims in. The person that turns in smaller dollar amounts but more frequent will be penalized more than the person who turns in one larger claim.
7.) Where you live
Where you live and work plays into your auto insurance premium as well. If you live in an area that is more heavily populated, you will tend to see a higher price on your collision coverage. Since there are more drivers on the road and the area is more populated, the chance of an accident is higher. To go hand-in-hand with this, your PIP(Personal Injury Protection) coverage will also be more expensive due to the increased likelihood of an accident requiring medical attention. If you live in a more rural setting, you will most likely see a higher premium on your comprehensive coverage due to the increased chances of hitting a deer. Each company has different loss history in different areas. This is why having an independent insurance agent is so important. They have multiple carriers that they can place you with to increase the chance of finding the right coverage and price for you!
8.) Your age
Another reason the cost of your auto insurance is so expensive might be due to your age. Historically, younger drivers are more prone to accidents than drivers between the age of 30-60. Younger drivers tend to be the ones who are struggling the most with distracted driving factors. Cell phones and other technology play a huge factor into distracting drivers. There are ways to combat this though! Many companies offer Good Student discounts if your youthful driver has a “B” average or better. This applies to high school and college students alike. It’s a very substantial discount and all you need to do to verify it is provide the most recent report card for your child. There are also companies that provide discounts if the youthful driver in the household completes online safety driving classes. These classes focus on ways to prevent distracted driving and the discount can be 15-20%. Finally, insurance companies offer telematic devices that can be utilized to monitor your child’s driving habits. These telematic devices don’t necessarily have to be plugged into your vehicle anymore. It’s common now for you and your child to download an app on your smartphone and it will monitor how fast your child is driving, acceleration habits, breaking habits, and the time in which they drive. The safer your child drives, the larger the discount! Also, these discounts can stack on top of one another. When you combine them together, you can end up minimizing the cost of your auto insurance!
9.) Previous insurance history
Another factor that plays into the cost of your auto insurance being so expensive is your prior auto insurance history. If you have a lapse in your coverage, you are going to pay significantly more for your auto insurance. Insurance company’s give better pricing to people who have stayed insured continuously for a stretch of time. If you keep your auto insurance in force, you have a much higher chance of finding better rates than if you consistently let it lapse or cancel. It’s also a good idea to try and stick with a carrier for a few years at a time. The insurance industry frowns upon people who change companies every year. If you want to shop your policies each year, let and Independent Insurance Agent do that for you!
10.) Multi-Policy Discounts
Finally, one of the best ways to minimize the cost of your auto insurance is to bundle your insurance policies together. One of the largest discounts you can receive is the home/auto discount. This means insuring your home and autos with the same company. This discount can be upwards of 20-25%! Also, to increase the amount of discounts, look at bundling a life insurance policy or an umbrella policy! You will not only save money, you will get added coverage for when the unexpected happens!
As you can see, there are many factors that determine the price of your insurance. I hope this article helps you understand what goes into the pricing as well as some ways to help minimize the cost of your insurance needs! As always, reach out to Mid Valley Insurance for any and all insurance related questions. We will gladly help guide you in the right direction even if you aren’t a client of ours!