How An Insurance Company Determines Your Premiums

Do you know your insurance score? Most people don't
even realize that they have one until they receive an
"adverse-action" notice in the mail notifying them that,
based on their insurance score, they don't qualify for the
lowest pricing available from their insurance provider.
To help you decipher what all this means, here we go
over what the insurance score is, how it's calculated and
some things you can do to improve it.
Tutorial: Introduction To Insurance
The Mystery
If you ever get one of these adverse-action letters, any
efforts to dig a little deeper into the circumstances
behind your low score requires more perseverance than
most people are willing to put forth.
The adventure begins by following the letter's
instructions to call the listed 1-800 number to receive a
free copy of your credit report - which apparently has
some effect on the score. You may wait several weeks
for a reply, only to be sent a consent form that reads like
an 's dream: the form will request detailed proof of
identification, including photocopies of your driver's
license, in addition to your social security number and
your insurance information.
If after gathering all of that information you are brave
enough to send it off through the mail, the packet that
you get back will simply summarize your credit rating,
with absolutely no information about your insurance
score. If you inquire further with the credit-reporting
agency , you will likely be told that your credit report
contains information that was used to calculate your
insurance score, but that the credit-reporting agency has
no access to your actual score.
If you persist and contact your insurance company, it
will likely tell you that 99% of its clients do not qualify
for the company's lowest rate, and to qualify, your credit
must be absolutely perfect. In other words, even if you
carry no balances on your credit cards, own your home
free and clear, are completely debt free and have a credit
rating in the high 700s, you're still unlikely to have an
insurance score that qualifies you for the lowest
available insurance rate. So what exactly is this
mysterious insurance score, and what exactly is its
reason and purpose?
What It Is and How It Is Calculated
An insurance score is a rating used to predict the
likelihood that a customer will file an insurance claim.
This score - as we noted above - is based on an
analysis of a consumer's credit rating, and the method
for calculating it varies from insurer to insurer. While
many companies use proprietary formulas to calculate
the scores, the factors used in the calculation include the
customer's outstanding debt, length of credit history,
payment history, amount of revolving credit versus
amount of credit in the form of loans, available credit
and monthly account balance.
Unlike a credit rating, which uses personal financial
information to determine your ability to repay debts,
insurance-score calculations do not factor in your
income. This omission means that it is very possible for
you to be penalized for taking out a large loan or
charging a large amount on your credit cards each
month even if your income is more than enough to cover
the expenses.
The Logic
Insurance companies justify the use of insurance scores
by citing studies that apparently show a positive
correlation between credit scores and insurance claims.
At some level, this may seem to make sense. At the level
of minor traffic accidents, for example, it is reasonable to
argue that individuals with poor credit are more likely to
file claims, if for no other reason than the fact that they
lack the funds to make repairs on their own.
Of course, if we look at the logic behind insurance scores
we might want to look at it also from a business
perspective: insurance scoring is quite profitable,
especially since almost nobody qualifies for the lowest-
tier pricing. Keep in mind that insurance premiums are a
recurring revenue stream for insurance companies, and
the scores help justify higher premiums.
How to Minimize the Impact on Your Wallet
A perfect insurance score, in the eyes of an insurance
company, represents a client with the lowest possible
risk of filing a claim, so - since the probability of filing a
claim is based on credit - good credit is the key to a
high score. A good credit report can have such a large
impact on your insurance premium that you can, for
example, have a flawed driving record but good credit
and pay less for your car insurance than a driver who
has a perfect driving record but bad credit. Do keep in
mind, however, that your insurance score is not the only
factor that determines your premium (you can ask your
insurer for more details on what the other factors are).
While it is unlikely that your insurance score will ever be
perfect, there are a few relatively painless steps that you
can take to improve your score. To keep your insurance
score high, be sure to pay all of your bills on time and
limit the number of credit cards that you apply for and
open. (See The Importance Of Your Credit Rating and
Consumer Credit Report: What's On It.)
But, paying your bills on time isn't enough: as we
mentioned above your insurance score is adversely
impacted by large monthly credit card expenditures,
even if you pay off your entire balance each month. To
help your insurance score, you can minimize your credit
card use. While it can prove unreasonably inconvenient
to stop using your credit card entirely, most of us can
find ways to cut down.
That said, if your goal is to have a perfect insurance
score, be sure to evaluate whether the costs of changing
your financial spending patterns is worth it. Cutting out
your use of credit cards means time-consuming trips to
the ATM and extra service charges from increased debit
card use. You might also have to avoid the convenience
of online transactions (still done primarily through the
credit card), and, finally, if your credit card company
offers you benefits - such as air-travel or other types of
points - you might have to forgo these as well.
So, even after finding out about an imperfect insurance
score, you may find the effort needed to perfect it is not
worth what may amount to relatively small savings in
premiums. (Remember, your insurance score is not the
sole impact on your premium.)
The Insurance Score Is Here to Stay
The use of credit history to determine insurance
premiums is quite alarming to many consumers,
particularly to those who have never filed an insurance
claim but still don't qualify for the lowest available
pricing. Unfortunately, insurance scoring is a standard
practice among the ranks of the nation's largest
insurers. Erie Insurance, in its explanation of insurance
scoring on its website , reports that 90% of insurers use
insurance scoring in some way. Other studies place that
percentage even higher. With that in mind, the best way
to help keep your insurance premium low is to keep your
credit score high. Take the same amount of caution with
your credit score as you would with your driving - being
responsible with both can save you serious amounts of
money in insurance premiums.

Why You Need Boat Insurance;

Some people simply overlook boat insurance. They think
that nothing bad is going to happen, when in reality, bad
things often happen involving boats!
If you own a boat, you need boat insurance. In fact,
many states now require boat owners to carry Watercraft
Liability insurance before they transport or operate a
boat. If your boat has been financed, your lender will
almost always require you to carry full coverage boat
insurance.
Again, most people don’t think anything bad will happen
– but bad things do indeed occur!
Vandalism is one problem that you may encounter. This
is especially true if you dock your boat in a marina.
Vandalism can also occur when you park your boat at
your home, or at a hotel when traveling.
When you shop for insurance, make sure that vandalism
is covered on your policy. Most issuers of boat insurance
will only offer you the Watercraft Liability – but in most
cases, you need more coverage than that! Theft is
another possibility. Cars are stolen all the time – but
boats are stolen as well. In fact, stealing a boat is easier
than stealing a car!
Boat insurance should cover you in the event of
vandalism, theft, sinking, fire, storms, capsizing,
stranding, collision, and explosion. Furthermore, the
insurance should cover the boat, the motor, and the
trailer used to transport the boat. The boat should be
covered no matter who is operating the boat, as long as
they are legally allowed to operate the vessel.
Boat insurance will typically cover you in the event of
malfunction as well. If something happens to your
motor, it should be covered by your insurance. It should
also cover you in the event that your boat needs to be
towed back to shore.
What you are covered for depends on what type of
coverage you purchased through your insurance agent.
For this reason, it is important to know what type of
coverage is available. Not all insurance companies will
offer all types of coverage, but they will offer Watercraft
Liability and Watercraft Medical payments.
Watercraft liability covers you just like car liability
insurance protects you in the event of an accident where
you are found to be at fault. Medical payments will cover
medical expenses incurred by you and the occupants of
your boat that are the result of a boating accident in the
covered water vessel.
Optional insurance usually includes coverage for
reasonable repairs, emergency services to your boat,
motor, or boat trailer, and wreck removal. Wreck
removal is very important coverage to have. If you boat
sinks, it will need to be raised before an insurance
company can access the damages and pay your claim.
This is very expensive, and in most states, the law
requires you to remove wrecked or sunken vessels.
Boats may be luxury items – but they are very expensive
luxury items.
Repairing or replacing a boat may not be something that
you can easily afford – but in most cases, you will find
that boat insurance is quite affordable. However, if you
are thinking in terms of cost, and you think that you
cannot afford the boat coverage, you can be certain that
you will not be able to afford to repair or replace the boat
either!
No matter how you look at it, you need boat insurance,
even if you just purchase the watercraft liability
coverage. Again, most states now require this liability
coverage for water vessels, and if the boat is financed,
the optional coverage may be required as well.
Discuss your boat insurance coverage needs with your
insurance agent to determine what coverage is right for
you and your boat.

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​Things To Do After a Crash

 An automobile accident can have serious financial consequences, even if nobody is injured. If motorists don’t record as much information as possible about the circumstances of the crash, it could be harder to determine fault, and they could end up being wrongly pegged as the driver responsible for the accident. To help drivers avoid unnecessary consequences of getting into a crash, here are a few helpful tips:

​Things To Do After a Crash

– A vehicle owner should never admit responsibility or apologize at the scene of a car crash, according to the Nevada Division of Insurance. Often drivers are eager to place blame after a collision, and saying sorry or preemptively admitting fault could have some serious consequences. The party determined to be at fault will likely be responsible for the other driver’s property damage or injuries, and will most likely suffer increased insurance rates or, in some cases, have their coverage canceled entirely. Instead, drivers should focus on getting their vehicles out of the road if possible and making sure everyone is all right.
– Gather as much information as possible at the scene of the accident. Collecting an extensive amount of info will make filing a claim considerably easier. After swapping insurance information, the Texas Department of Transportation recommends that drivers note the location of the crash; get names, addresses, and phone numbers of any witnesses; and take pictures of any damages. Giving an insurer detailed information might help deflect misdirected blame, which may also help prevent the driver’s coverage costs from rising.

Things Motorists Should Do Before an Accident

– Before getting behind the wheel, motorists should fully understand their insurance policy. Getting in an accident without fully comprehending who or what is covered can have disastrous results. Many of the best online auto insurance companies will work diligently with customers to ensure that they are getting the right amount of protection. If motorists have any questions, they shouldn’t hesitate to ask.
– Drivers should choose a deductible they can afford. Although it may be tempting to set a higher comprehensive or collision coverage deductible to save money when buying a policy, motorists shouldn’t forget that this is the amount that they agree to contribute before their protection takes effect. Attempting to save money on monthly premiums may end up costing you after an accident.

Higher Insurance Rates for Middle-Class Motorists

There are a lot of different expenses associated with owning an automobile. Apart from maintenance and the ever-growing cost of gas, people also need to pay for car insurance. A recent study by the Consumer Federation of America (CFA) suggests that good drivers in moderate-income areas are often quoted high rates by many major coverage providers.
To get these results, the CFA compared quotes from four leading insurers across 15 major cities for moderate-income drivers who were searching for the minimum amount of liability protection required in their state. The CFA was surprised to find that 56 percent of the estimates they received were over $1,000 and that 32 percent exceeded $1,500. The question that continues to stump the CFA is why low- and moderate-income drivers with perfectly clean driving records are being charged so much for basic liability protection.

The Consequences of Higher Premiums

The CFA has called on state insurance commissioners to investigate these seemingly discriminating price differences, saying that the inflated prices in low-to-moderate income areas has led to a higher concentration of uninsured motorists.
Many people in these areas say that they are unable to purchase car insurance online or through an agent because they cannot afford the coverage. However, instead of making policies more affordable, many states have heightened the penalty for not meeting state financial responsibility requirements. California is one of the few states that offer a low-cost program for low-to-moderate income vehicle owners with clean driving records. A large number of people on the road without adequate protection can have a number of consequences.
If someone is struck by another motorist, the responsible driver’s insurance ends up paying for the damages. If someone is hit by someone who has no coverage, however, the victim’s own insurer often ends up paying for any hospital-related medical bills as long as the policyholder has purchased uninsured motorist (UM) protection. Consequently, an insurance company is going to charge more for UM or collision coverage for drivers living in areas with fewer insured vehicle owners.
Although the CFA uncovered a high number of overly expensive policies, prices also varied significantly between insurers. While some quotes were over $3,000, others were priced under $500. The reason for these differences is every coverage provider interprets risk differently. If low- and moderate-income drivers shop around and explore as many quotes as possible, they may be able to find adequately priced car insurance.

Down Payments Required for Florida Insurance Policies

Sometimes people need to get insured in a hurry. Maybe they need to register and start using a long-dormant extra car again, or maybe they just missed a payment and accidentally let their insurance lapse. If they’re strapped for cash, they may want to get going with a policy that will cost them nothing to start up, but Floridians looking for a no down payment auto insurance policy will find that there may be a major road block: Florida law requires insurers to collect down payments from customers for policies they buy from a new insurer.
According to section 627.7295 of Florida’s statutes, a new policyholder must pay at least two months’ worth of premiums for a new policy in order to get insured legally, and this amount must come directly from their own pocket. If they were planning on going through a premium finance company to get the first few months covered, they’re out of luck.
“Insurers, agents, and premium finance companies are prohibited from advancing the down payment to the applicant or otherwise circumventing the requirement that the down payment come from the applicant,” according to a bill analysis from the Florida House Committee on Financial Services. This law has been in place since 1995.

​Exceptions to the Down-Payment Law

There is a handful of exceptions to the law. Here are the major ones:
– When the insurer issues car insurance primarily to active duty or former military personnel or their dependents
– When the policyholder or one of the policyholder’s family members is renewing or replacing a policy written by the same insurer
– When the policyholder or one of the policyholder’s family members already has a policy in effect and is just purchasing additional coverage or adding coverage for an additional vehicle from the same insurer
– When all payments are made through a payroll-deduction plan or through an automatic electronic funds transfer payment plan

​Why Require a Down Payment?

According to the committee analysis of the law, there are three main benefits of having the law.
First, it helps them enforce the state’s mandatory auto insurance law. Floridians need coverage to register their vehicles. And if they can get covered for absolutely no start-up costs, they might take advantage of the system by taking out a policy with no down payment, registering the vehicle, and then letting the coverage lapse when they fail to pay for it. Florida’s uninsured rate has been estimated by the Insurance Research Council to be around 24 percent, the fifth-highest rate in the nation, and lawmakers don’t want that going any higher.
Second, it helps ensure that insurers don’t lose money by being required to pay for any claims on a no-down-payment policy that they never collected any premiums on.
Third, it helps keep premium finance companies and insurers from establishing an unfair edge by offering zero-down policies.