Let's have a closer look on the individual components which determine insurance scores.
Ever since Lindsay Lohan added yet another charge to her long list of accidents and violations, many have been curious about what someone like her would pay for insurance. We all know it has to be astronomical, but unfortunately, there’s no way to really make a good guess, and that’s because insurers, states, and most importantly, policyholders are all so different and no person’s premium will ever be like someone else’s since so many different factors go into calculating premiums.
That said, the reason we can’t easily pinpoint what she pays monthly is because there’s a lot of information affecting her auto insurance score we don’t know that much about. We only know the public incidents and can already conclude that she will pay a pretty big bill. But to go further we ought to know also her credit history, her address, how many cars she has, other drivers on her policy, and some more.
All of those things make up what’s called an insurance score—something that tells underwriters exactly what to charge you, and it’s the reason your premiums are different from everyone else’s. We would need to know Lindsay’s to figure out a premium, but most don’t even know what information they’d need to find that would lend to her auto insurance score. So although we can’t learn what her premium is (even though it would be fantastic and amusing to see that) we can learn from her since we can acknowledge that there’s a lot of info that goes into the underwriting process, and learn that more is at play behind our premiums than we thought, and best of all, what we can do with it to make our premiums better.
So what is your insurance score? Your insurance score is the mysterious body of information collected over time by insurance companies which help them predict whether or not you are a good risk. We even don’t know precisely what information is in your insurance score, and we don’t know exactly how it is calculated, but we know it exists and that it has consequences. Let’s go for the obvious components:
Components of Insurance Scores
When you are shopping for an insurance policy one of the most important things an insurer will look at is your insurance score. How many accidents have you had? Were those accidents your fault? How many traffic citations have you had in the past year? Have you allowed your insurance to lapse at any time? All of these things help to paint a picture of you as a customer and the risk you engender.
Insurance companies are in the business of betting on your behavior. Because insurance companies want to offer you the best policy possible for as long as possible, (which enables them to collect more premiums and realize more profits,) of course they want to “bet” on customers whose history reflects a pattern of responsible choices. If you behave recklessly in some parts of your life, you will probably behave recklessly in others. But it’s not just about your driving record.
Interestingly, your credit score comes into play here also. Statistically, people who pay their bills on time are more responsible in other life activities. People with a bad credit history are more likely not to pay their premiums but they are also more likely to receive traffic tickets, and to make claims on their coverage. These bad credit scores can also telegraph a customer’s tendency to jump from insurance carrier to insurance carrier. For this reason alone, an underwriter will probably raise your premium. If you’re not going to be a long-term customer the chance of the insurance carrier to maximize his profits in dealing with you also will be short-term.
These days it’s not unusual for insurance companies to refuse or severely restrict the policies they will write for people with poor credit scores. Some companies have also begun to refuse to insure people who have filed for bankruptcy. Being a steady, responsible, predictable person makes you less risky which makes you a much more desirable insured.
Even celebrities don’t get breaks on insurance—it can actually be harder for celebs with bad rap sheets to find certain kinds of insurance—it’s not a dish at a restaurant you get for free just because you’re a star. That said, it just reinforces the fact that you know you need to do all you can to keep your insurance score in tact and to make sure you don’t end up in non-standard insurance paying higher premiums, and it certainly reinforces that if a celebrity can’t catch a break from an insurer, neither will you, so you have to take control of the situation yourself.
How To Improve Your Score
In fact, you probably have a better chance at cleaning up your insurance score quicker than she does. If not, you’ll at least know now what affects your premiums. There are steps you can take to improve your insurance score. By getting your credit score in line and by keeping it under control, you increase your options for lower-cost policies and help to realize savings you’d not even imagined. Sticking with the same company
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over time will be beneficial in many ways. The more policies you have with that company may also earn you multi-policy discounts. And, as mentioned before, the incentives offered for long-term policy holders can be worth their weight in gold. Having said this, it still is beneficial to shop around and to compare prices for the very same package with multiple carriers. After all, an insurance score with all it’s components is just another, yet important factor beside others.
Image: Flickr.
