(BPT)—Getting the best price on auto insurance without sacrificing the quality of coverage and service may be easier with a basic understanding of how companies calculate auto insurance premiums.
“Many different variables factor in when calculating premiums,” says Bob Hertel, product development director with Acuity Insurance. “Some pricing variables are within the policyholder’s control and some are not.”
Here are five factors customers can influence that contribute to auto insurance premium calculations and how to make sure they add up to the lowest possible price:
1. Timely premium payments: Timely payments may result in reduced premiums, while a late premium payment may result in a reinstatement surcharge. When switching insurance companies, a history of lapsed coverage is likely to result in higher premiums.
“The insurance industry has found a strong correlation between one’s responsibility in making timely premium payments and safe driving responsibility,” Hertel says.
2. Bundle: Most insurance companies discount home and auto insurance premiums when they’re bundled.
“Beyond the bundle discount, some insurers also provide a single deductible feature,” Hertel says. “If one’s home and auto are damaged in the same storm, the customer is responsible for paying only one deductible.”
3. Miles driven: Reduced annual mileage often will reduce premiums. Policyholders who have moved to working remotely can ask their agent to adjust the annual miles driven.
4. Driving record: Accidents and violations typically raise premiums. Good drivers often pay less than half the premium charged for someone with multiple incidents.
5. Credit score: The insurance industry has found a strong correlation between responsible use of credit and cautious driving. Most insurers in most states reward favorable credit scores with lower premiums.
A poor credit score does not have to result in a permanent pricing penalty. Insurance companies typically order score updates at renewal and will discount premiums when credit scores improve.
Policyholders also have the ability to reduce policy limits and optional coverages; however, Hertel cautions against this approach.
“It may be possible, but not wise, to cut premiums by reducing policy limits for bodily injury, property damage, medical payments and uninsured motorists coverages,” Hertel says. “High limits are recommended to protect your financial well-being after an accident.”
Eliminating optional coverages may be another enticing approach to lower insurance costs in the short term but can have a significant impact on what the insurance company will pay following a claim.
Physical damage coverages, sometimes called “comprehensive” and “collision” coverages, pay for loss to your vehicle should an accident happen. Hertel notes that an alternative approach to eliminating these coverages while still reducing premiums is increasing the deductible.
“Ultimately, auto insurance companies want to encourage safe driving, offering a variety of discounts including low annual mileage and accident-free incentives,” Hertel says. “Independent auto insurance agents are available to help customers find the right coverages, limits, and discounts to meet their needs. An independent agent can also provide important assistance in the event of a claim.”