12 secrets the insurance company won't tell you
August is here and the winter approaches soon. It's time to start looking at
your policy to see if you need any extra coverage when the roads are not as
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12 secrets you’re the insurance company won't tell you
the industry works can save you a lot of money and grief. Here are the secrets
behind the premiums, and how you can save after an accident.
Getting a good deal on auto insurance is hard enough. Keeping your premiums from
rising? That can feel like playing a game where the rule maker refuses to tell
you the rules.
Here are a dozen ways the industry works, with tips to help you save:
If you have good credit, you'll pay less. Almost all
insurers -- including the top five -- pull your credit report. Why? Studies have
shown a direct correlation between your credit score and the likelihood that you
will file a claim. Insurers also know that if you pay your bills in a timely
fashion and have had the same credit accounts for a long time, you're more
stable than someone who pays late and frequently opens and closes accounts. They
use this information to create your "insurance risk score," which is one factor
that determines your auto-insurance rate.
Your insurance-risk score is not available to you, but it may be similar to your
credit score. If you have unusual credit activity, wait a month for it to return
to normal before buying auto insurance. If your credit history is shaky, clean
it up as soon as you can.
Your car model affects your premium. You won't
get these numbers from your insurer; in fact, you may not be able to get them at
all. But the auto insurers do have a rating system for every car make and model.
Most use a system devised by the Insurance Services Office, which starts with
the cost of the vehicle and then factors in safety and theft data. Cars are
given a rating from 1 to 27, and the higher the number, the higher your premium.
Look up your car's relative risk with MSN Money's
comparison tool. If you're buying a new car, ask your insurance company
about the difference in premiums for cars you're considering. Search online for
the latest top 10 lists on
the most expensive cars to insure, and the least.
Pay in full to avoid installment fees.
"Fractional premium" fees are usually charged when you pay your annual premium
in installments rather all at once. Payments usually are offered on a six-month,
quarterly or monthly basis, but almost every insurance company charges an
administrative fee for breaking up the payments. The more you break it down, the
more those fees add up.
Ask about fees for paying in installments. If the fees are small enough, it may
be worth it. Remember that insurance companies can cancel your policy for late
payment, many times with minimal notification, so make sure you won't miss an
installment. If you can pay the premium up front, it may simplify the process
and save you a few dollars.
That Pearl Jam CD in your car isn't covered.
Stolen or damaged personal items like compact discs aren't covered by your auto
You can file a claim on your home insurance. Most home-insurance policies will
cover smaller, less expensive items such as compact discs. However, if you carry
expensive items such as computer equipment, ask about a rider to your
home-insurance policy. It's wise to take photos or video of any expensive
personal items before they go missing.
Bad drivers will pay
You'll pay for your bad driving. The
industry standard is to increase your premium by 40% of the insurer's base rate
after your first at-fault accident. For example, if the company's base rate is
$400, your premium will go up by $160. Not all auto insurers play by this rule,
though, and some may increase your individual rate by 40%. Regardless of what
formula they use, in the majority of cases, your rates will go up.
Some insurance companies have a "forgive the first accident" policy. The
qualifying variables are wide-ranging, so ask your company if it has a
forgiveness policy and how to qualify.
You'll pay for your friend's bad driving, too. If
your friend borrows your car and crashes it, you'll have to file a claim with
your insurance company. You'll have to pay any deductible that applies, and your
rates will probably go up as a result of your claim.
If your friend didn't have permission to take your car, in most cases you won't
be held liable for the damage. But if your friend is uninsured and causes damage
that exceeds your policy limits, the injured party can come after you for
medical and property-damage expenses. Best bet? Don't lend out your car.
Your car's real worth
The value of your "totaled" car may surprise you.
Auto-insurance companies don't use the standard Kelley Blue Book or National
Association of Automobile Dealers value. Instead, each company has its own
proprietary list of car values, and most have specialized software for valuing
cars in each region. They take into consideration the car's mileage and
The insurance company may also ask local dealers what they'd charge for a
similar replacement car. However, the insurer will consider quotes from suburban
towns as reasonable estimates, even if you live in the city. You might have to
drive several hours to reach the cheapest dealer, just to save the insurance
company money. And they might be quoted a better deal than you could get if you
walked onto the lot.
If you disagree with your insurance company's value determination, there are
several things you can do:
Next time, get "gap" insurance.
pay the difference between what an insurer will
cover and what you owe, which can be several thousand dollars.
If you have maintenance records that show you've had the oil changed every
3,000 miles and you've had the car checked routinely by a mechanic, present
copies to the insurance company to show the car was in good condition. If
you've been paying premiums on any special parts or upgrades, make sure
those are included in the insurance company's evaluation.
Get price quotes on replacement cars from three dealers within a reasonable
driving distance and submit these to your insurance company. Ask the
insurance company for a list of dealers within a specific distance who can
sell you an equivalent car for the value the company is claiming.
If you still aren't satisfied, you can step up the process and go to
mediation or arbitration. Mediation involves presenting your case to a
neutral party for help in reaching a compromise; arbitration is a binding
decision. You can also, of course, take the issue to court.
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In our next issue, we will cover how insurance adjusters evaluate claims and how they give value to "pain". Our next issue will be delivered on or about September 20th.
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