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UPDATED: Mar 13, 2020
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Multiple car insurance, also known as multi-car insurance, is an option available to drivers who own more than one vehicle. It’s also a great option for multi-car families that may have three or four licensed drivers, each with their own car insurance policy. Combining all of these cars on a single policy is a great way to get the coverage you need for less money than individual policies.
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It’s probably a no-brainer for an individual with multiple cars to have them combined on a single policy. But multi-car families with separate policies are more common than you’d think. Given the fact that economic conditions have forced many extended families to come together under the same roof, having multiple auto insurance policies within a single household unit happens all the time. However, there are distinct advantages to changing that.
Combining Policies Good for Insurance Companies
Most of us are already aware that insurance companies are willing to bundle all of the policies of a single customer into one package. For example, you can get auto, homeowners, and life insurance all from the same company at a cheaper price than separate policies from three different companies. Insurance providers are willing to do that because it increases cash flow.
Why is cash flow important? Because cash flow is what enables an insurance company to make a profit. Without cash, they wouldn’t be able to sustain their businesses for very long without raising premiums to unaffordable heights.
As the Insurance Institute of Michigan explains, insurance companies do three things with the premium money they collect: they pay claims, they pay administrative costs, and they invest. The last of the three, investing, is where the profits are made. In order to invest an insurance company needs premium dollars.
They are willing to bundle policies because that brings in more cash to be invested. The more cash on hand the higher their reserves. The higher their reserves the more money they have to invest. It’s simple economics for the most part.
Combining Policies is Good for Drivers
Bundling policies is good for drivers as well because they save a little bit on each one. As for multiple car insurance, it works on the same principle as bundling.
By combining all of the vehicles on a single policy, you might be saving 2% to 5% per vehicle.
When you combine all of those smaller amounts, you come up fairly significant savings. Think of it in terms of the old proverb “a penny saved is a penny earned.”
If there is one catch in the multiple car insurance model, it comes by way of the drivers in your household. It’s one thing to save some money by putting three or four cars on the same policy, but if one or two drivers in your household have atrocious driving records, the entire cost of the policy will go up. That’s something to think about when considering this type of car insurance.
Why Driving Record Is Important
According to the Illinois Department of insurance there are multiple factors that affect how much drivers pay for premiums. One of those factors is an individual’s driving record. Multiple accidents and violations drive up premium costs because they present risk to your insurance company. The greater the risk the higher your rates.
In some states, insurance companies are strictly regulated in how they can apply your driving record to premium calculations. In Montana for example, any conviction for a motor vehicle related infraction remains on your driving record permanently, but an insurance company cannot factor that into premiums after the third year. One exception is multiple DWI convictions.
Regardless of your state regulations, it’s easy to see that drivers with poor records tend to drive insurance rates up. So if you have multiple drivers in the same household, and you’re thinking about combining your vehicles on a multi-car policy, consider everyone’s driving record before hand.
Living in the Same Household
The other fly in the ointment here is the fact that drivers actually have to be living together in the same household in order to qualify for multiple car insurance. In other words, if you and your spouse live on the east side of town, and your brother and his family lived on the west side of town, it’s unlikely you’ll be able to get together for a multi-car policy. You have to be living under the same roof to do that.
By the same token, if you do have multiple drivers living in the same house they must all be included on the same car insurance policy unless each one already has their own policy. The best way to understand this is to simply think of parents and their children.
If you have two children who have earned their licenses, you must report them to your insurance company unless they have already purchased an insurance policy of their own. Reporting them is necessary so that your insurance company can assess the risk of them potentially driving your vehicles and adjust your policy accordingly. According to the laws in most states, if you fail to report children, and they have an accident while driving your vehicle, your insurance company may have the right to deny the claim.
The same can be said for licensed drivers in your household who are not your children. As your insurance company sees it, any licensed driver may potentially use your car at some point. That means they all have to be covered by something. If they have their own insurance policies that’s one thing, but if not, your insurance company is assuming they will have to cover such individuals.
Don’t Forget about Vehicle Assignment
When you’re choosing multiple car insurance there are a couple of things to look out for, not the least of which is vehicle assignment. Vehicle assignment is based on what are known in the insurance industry as primary and secondary drivers.
Letting your insurance company determine vehicle assignment can cost you more money.
For purposes of definition, a primary driver is the individual who operates a given vehicle most of the time. A secondary driver is one who might operate that same vehicle only on an occasional basis.
So, if mom uses the family minivan to go work, shuffle kids around town, and run errands everyday of the week, she will be the primary driver of that vehicle. Dad will be the primary driver on the family sedan he takes two and from work every day. Both will be secondaries on the vehicle of the other,
When insurance companies assign primary and secondary status, they do so in order to assess the risk that each vehicle will be involved in an accident. If you don’t specify otherwise, they will assign the highest risk driver as the primary on the most expensive vehicle. This isn’t your insurance company trying to rip you off; rather, they are trying to reduce their risk as much as possible.
For multi-car insurance, it’s important for all the drivers involved to determine which one presents the most risk and make sure he’s assigned as the primary driver for the least expensive vehicle. That may end up meaning certain drivers don’t get to operate their vehicle of choice as often as they want, but that’s the cost of keeping car insurance rates down.
Shopping Around Is Important
The last thing to know about multiple car insurance is that shopping around is just as important as it is when purchasing a single policy. Without shopping and comparing quotes, it’s nearly impossible to discern which companies are providing the best coverage for the least amount of money.
As Consumer Reports explained in their 2010 guide to purchasing car insurance, discounts are one of the ways to save money. In a multi-car household with multiple drivers, discounts could be the difference between paying a lot for an auto policy and paying less.
In order to find discounts you need to shop around.
For example, a company that offers a group of discounts including those for safe driving, good student grades, and policy bundling may present the best combination for your particular circumstances. Another company that offers only one or two of the choice discounts may not give you as good a deal. That’s all part of the shopping experience you will have to take into consideration.
The second reason for shopping is that insurance companies rate drivers in different ways. Each has its own separate formula they use to calculate rates. This formula includes statistical data, individual driver records, credit histories, and so on. However, the formulas are rarely the same between multiple insurance companies.
One insurance company might rate the drivers in your household one way while another does so in a completely different way. The difference in driver rating will influence the premiums you pay. So shop around and get multiple quotes from three or four insurance companies before purchasing your multiple car insurance policy.
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