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Some Things Your Car Insurance Company Won’t Tell You

Auto insurance has been around for as long as people can remember. Now that everybody knows how to choose a good company having an excellent reputation and strong financial condition, it seems that all car owners can always purchase coverage from the right insurers. It is indeed important to choose the best company you can get; you can do this by conducting little online research to find information about any particular company’ claim ratio, customers satisfaction rating, financial strength, available discounts, and more.

Nonetheless, there are other things that you probably don’t know about auto insurance as briefly outlined in the following passages.

How to Determine the Value of “Total Loss”

Most companies will tell you that they use at least three methods or schemes to determine the actual a totaled vehicle value including value books, computer-generated quotes from dealers, and local market research. In this case, you will probably think that the local area is your current neighborhood, but it is not specifically defined by the insurer. If, in any case, the company cannot find an auto replacement in your neighborhood, so they have to find it not from your “local area,” your totaled car’s value is certainly affected. For example, if you currently live in New York, replacing your totaled vehicle in suburbs will be cheaper than in the city. An insurance company will, of course, use quotes from suburbs area as the most-reasonably-priced estimates. The main purpose in totaling a vehicle is to allow the consumer (the insured person) to purchase the same car that is totaled in an accident within the local market. Since they use three different schemes to figure out the real value of a totaled car, a consumer may end up with a cheaper car than the totaled one. It is impossible to be sure what value you will get when your company does not tell you how they determine it.

Fortunately, you can do some smart methods to help yourself and your company to do the value determination. First, you have to produce valid proof that your car was in good conditions when the accident occurred; car in good condition has better value than a wreck. Bring a copy of maintenance records including oil changes and inspection by an authorized mechanic. The records will tell your company that your auto was regularly maintained, meaning it was actually in great shape (in terms of appearance and performance) when the accident occurred. Moreover, you probably had special features installed such as multimedia system, Anti-theft system, anti-lock brakes, rear view camera, or 5-harness seat belt. The car insurance company may charge you more because of some special upgrades, so make sure that your insurer includes that in the evaluation.

Another good thing is to find at least three dealers and get quotes on a replacement from them; make sure all dealers in your local area or at least within a short driving distance from your home. Present the quotes to your insurer and ask your insurer to provide a list of some car dealers who probably can provide a car for the price listed in the quotes. If you are not satisfied with the company’s value determination or you get less than you expect, you can choose to do mediation. So, meaning you present the case to a third party (neutral) to get help to settle the dispute or arbitration, or you can even request a formal inquiry to the court.

If You Want to Cancel Your Policy, Do It Officially

Most companies say that consumers can cancel their policies at any date, but you need to notify the insurer concerning the exact date you want to end the coverage. The statement is clear enough; in other words, it says consumers have to notify their companies when they want to cancel their policies. However, consumers often think that when they ignore the last bill before renewal, the company will automatically end the policy. Too bad, this is not how it is done. People can forget and deliberately miss a bill, and the company totally understands that. After this first missed bill, your insurer is going to send you one more bill for premium payment; if you don’t pay the bill, you will be canceled for non-payment, and the record will hurt your credit score.

What you should do when you want to cancel auto insurance policy is to let the company know that you are canceling. Please make sure that you provide a specific date; it helps you avoid being totally uninsured for a certain period, time, term. The cancellation request will be sent to you, and all you have to do is to put your signature. It is recommended that you carefully check the document before signing it. Some companies may require you to provide valid proof that you indeed have another coverage before they can approve the cancellation. If you’ve financed your car, the dealer needs the updated policy information because valid proof of insurance is required in the purchase contracts.

Credit History Still Matters

The use of credit information to determine approval and premium rate is still common, despite the fact that some states already started to ban such practice. Some (if not most) companies use the credit history to generate a risk score. They believe that it strongly linked or correlated to the likelihood of the consumer reporting a claim. More likelihood of filing a claim is exactly the same with a high-risk driver that usually also pays more expensive premium fee compared to “safe-driver” or “the preferred class.” The preferred consumers are those with stable credit card history as it suggests financial stability, meaning they are not likely to miss a payment. People of this category are safer consumers to insure compared to people with shaky credit history. Auto insurance companies do not like a consumer who pays sporadically or changes accounts quite frequently.

There are some credit card issuers who offer free credit score checking, but in most cases, you need to pay for the service. Unlike credit score, the risk score for insurance-related matters will not be available for you, but both probably indicate the same thing which is financial stability. If you are currently in the market to purchase auto insurance, and it turns out that you have quite unusual activity on your credit history within only a certain time frame, you can wait until one month to allow the credit activity to go back to its usual condition. If you cannot keep the credit score stable, prepare yourself to pay a more expensive premium fee.

Budgeting by Installments Is Not Always Efficient

Installments can pay almost all items, and consumers think that it is indeed the best way to budget the expense. When it comes to auto insurance, you can ask the company to divide the annual premium into a monthly basis, quarterly, or on six months. Please put in mind that dividing the annual premium will cost you “fractional premium.” You can consider this additional service fee to arrange the installment. It can be as cheap as $10 per payment; the more you break it down, the most fractional premium to pay.

Most companies will probably offer you to pay in installments since it makes more money for them. When you apply for insurance, it is wise to ask whether there is any additional charge for installments option, and then you can compare the difference. If the fractional premium is not very expensive, then perhaps it is worth it. Another big difference between upfront payment and installments is that certain companies will immediately cancel your coverage if you miss one payment; even worse, they can do it without notification. It is best to pay up front if you can; the entire process will be easier, and you can indeed save a few dollars.

Every Vehicle Model and Type Has Certain Premium Rate

Of course, you all know that sports cars need more expensive insurance policies than a van, but insurance companies will not tell you the exact numbers. In general, it is true that attractive, sporty, luxurious car with a turbocharged engine will go very quickly on the road, and it increases the risk of accidents, but this is not always true considering the discounts for safety features, security features, mileage (especially when you drive it less), etc. Auto insurance companies have a specific system to know the premium for all car models you can buy, based on the system rating by ISO (Insurance Service Office). Every type of car is rated from 3 to 27; a higher number means a higher premium. Insurance Service Office says that it will not release the rating system for publication because its clients are insurance companies.

You will not get the rating system from your insurer; you may not even find it anywhere at all. The best thing you can do when you want to purchase a new auto is to ask the insurance how much insurance premium you need to pay for a new car that you want to purchase. If you keep a good relationship with an independent agent, he/she should be able at least to predict the price based on raw calculation.

Filing Claim Increases Your Premium

People are always interested to see insurance companies reduce the premium fee to attract potential customers. It is indeed one of the best things customers get from the competition in the market, but your insurer can increase the price right away after you file your first claim. The industry standard is to increase premium fee up to 40% of the base rate after a first-at-fault accident. With the help of an online car insurance calculator, you get a base rate of $500, your premium increases by $200. Some companies have different rules, but there is always a big chance your premium will go up after the first-at-fault claim. Some insurers offer “first-accident forgiveness,” meaning your first actual claim will not affect the premium at all, but the variable and requirement for eligibility can be different from company to company. You should ask your insurer if such discount is available and how to qualify for it.

You may think that in the event of an accident, everything inside the auto is covered by the insurance companies; unfortunately, it is not. Damaged or stolen items such as compact discs or laptops are not covered. However, most home insurers cover small items such as compact discs, so you can file claims to the company that handles your home insurance. If you bring expensive equipment such as a laptop or camera, the process will be probably more difficult.

Education Level Does Have Its Roles in This Industry, Even When You Are the Customer

Education level and professions are important variables to calculate insurance estimates. Some people consider this a discriminatory practice and some states indeed ban the use of occupation and education level information as variables in determining insurance premium. However, it does not change the fact that it is the standard practice for years. Some insurers do not use such a method, but others simply argue that occupation and schooling do play their roles, based on real statistics. It basically suggests that someone who has a college degree gets a better bonus than a high school graduate receives. A bachelor also needs to pay more than someone with a master’s degree, and so forth.

Occupation also matters. Some professions involve high-stress levels, lack of sleep, frequent overtime working, etc; for a car insurance company, such things can be easily related to the high risk of accidents. Some of the high-risk professions include lawyers, doctors, architects, salespeople, business owners, real estate brokers, etc. On the other hand, low-risk occupations may include scientist, artist, accountants, nurses, pilots, and teachers.

Regardless of your education level and occupation, please ask the company if certain discounts are available for certain professions and academic degree, too. If you don’t have a college degree, simply go with the insurer that does not use this particular method. If you have any academic degree, however, it is good to take advantage and get the provided discounts.

Your Money Does Not Stay Still

Similar to almost all financial institutions, the auto insurance company wants to capitalize upon the already existing capital. In simpler words, the company takes your money and invest it but not on your behalf. The most difficult part of this process is, of course, attracting new customers. It has tough competition in the market, and your business probably has better deals with other companies in the area. To win the competition, every car insurer has to offer competitive prices yet not too cheap to anticipate payout that you may request in the future after filing claims. Once again, it takes some calculations to figure out the right premium for your particular risks. In most cases, the auto insurance company only hopes to manage to reach break-even point from the money that you pay every month.

Different Place, Different Price

Another major factor that helps determine premium fee is location or your address. Each state has its own rules about minimum liability coverage, traffic violations fines, etc. Moving to a different state, although not very far from your current address, can affect the premium too since the new location probably has different laws that affect coverage and it has different insurance companies in the existing market as well. Certain locations such as big cities may require you to pay more expensive premium especially if the city has a high record of accidents, vehicle theft, etc.

One of the Most Important Variables Is Whether You Are Considered Safe or High-Risk Driver

In most cases, men drive more aggressively than women do. The general assumption is that there are more male high-risk drivers than the female ones. As expected, any insurance company is extremely careful when checking your personal data including driving history. A high-risk driver is more likely to file claims or be involved in accidents either minor or major. Based on the assumption that high-risk category is mostly filled with men, insurer usually charges less premium fee to women.

Young and Old Pay Most Expensive Premium

The youngest driver purchases coverage for the most expensive price. The premium will decline steadily until the driver turns 25. From this point, the premium will probably stay flat for quite a while, usually until the driver reaches 55. The premium will once again increase as the driver is old enough to be considered senior; the driver has to pay the most expensive price again at age 75.

Insurance companies do not actually hide the aforementioned information from customers. You can always ask about many things to your company, or you can work with an independent agent instead of a captive one. Insurance is a must-have thing; no driver is allowed to drive without it. To make sure that you purchase from the best company, arm yourself with insurance knowledge about how it works and ask help from an independent agent when you have to.

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