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Have you ever opened up your car insurance renewal bill just to find that your rates have gone up by 10, 20 or even 30 percent? If you answered yes, you have experienced what experts in the industry call a rate increase.
Rate increases happen for many reasons, but they almost always leave the consumer with a giant question mark over their head.
While it can be frustrating, rate increases are extremely common in the industry. In fact, about 30 percent of drivers will receive renewal bills that are higher than the rates they were paying previously.
To fully understand why your car insurance premiums have gone up, you really need to understand how premiums are calculated.
Learning what factors can affect your rates will help you gain an understanding for the cause behind your higher insurance bills. When you understand what you are paying for and why those costs have changed, you can decide if it is time to look for a new insurance carrier.
Be sure to use the FREE car insurance comparison tool above to start your search today!
When do insurance rates go up?
There are three specific times when your rates can change:
Some of the rate changes happen when you make updates to your policy, and others happen without a change when your policy has been reassessed and your renewal is scheduled.
It is most common for rates to change unexpectedly when about 4 to 6 weeks before your policy term is up.
Most insurers will run your driving record, review your claims history, or add drivers that have had claims in the prior term at your renewal.
At this time, you will receive a new invoice in the mail that shows your rates for the upcoming term. You will need to compare the new rates to the rates from your prior term to look for differences.
It is possible that your rates can go up when you receive a quote after the application is underwritten and new information is found. In industry terms this is called a misquote. A misquote is completely legal if it is not intentional.
It can happen if you provide inaccurate information or if something was on your record that you were not aware of. When your policy is issued, you will receive a declarations page that shows your actual rates and how they compare to your quote.
It is also possible that rates can change when you call your agent to make even the most minor changes that do not involve adding a car or supplemental coverage.
If your rates change in the middle of the policy period, you will receive a notification in the mail detailing the reason for the change. If the change was made in error, you should contact your agent to have the error fixed.
Why do car insurance rates change so often?
You may be wondering why an insurance company would decide to charge you one rate this year and a completely different rate the next. The answer depends on many different factors. Insurance companies calculate rates and assign rating classifications based on risk.
The riskier that a customer is to provide coverage for, the more their premiums will be.
This is because insurance companies must collect more money when the likelihood of a claim is higher so that they can stay profitable and cover the claims that actually are covered.
There are a variety of different factors that you might not have assumed will change your risk class that can have a huge impact. There are the usual factors like accidents and tickets, and then the factors that only people who know the industry are familiar with.
Some of these factors are only reconsidered at renewals, others are considered the moment a change is made. Read on, and learn more about changes in risk and when these changes can lead to price changes.
Age and Number of Years Driving Experience
Youthful operators are drivers who do not have very much experience as a licensed driver. These drivers are known to file more claims for at-fault accidents than people who have learned how to drive defensively over the years.
Because they are more likely to file claims, youthful and inexperienced drivers are classified as high-risk.
They will pay high-risk rates, which are higher than the standard rates charged to drivers that have more than 9 years of experience. The rates will then drop and begin to climb again when you become a senior.
As you age and you have been licensed for a longer period of time, your rates will begin to go down. You may also qualify for good driver discounts that you did not before.
It is when you add a new driver that has little experience that your rates can skyrocket. This happens as soon as the change is made.
It is not out of the ordinary for an insurance company to add a young driver to your policy without asking at your renewal if they have had an accident in your car and it has been discovered that they live in the same home as you.
Vehicles has classification codes based on their accident and safety records. Every company calls their classifications something different, but they are essentially the same thing. The vehicle class is set when the vehicle is manufactured, and each year this code is reassessed to determine if it is accurate.
It can be difficult to really get a feel for a car’s safety record and the potential to cause damage in an accident the first year on the road.
This is why the rates for new cars can change dramatically when they are 2 to 3 years old. Most declarations pages will show the vehicle’s class for liability and damage. Be sure to review your dec page to see if the letter or number here has changed from one term to the other.
Changes will only occur at renewal if you keep the same car, but if you change vehicles the change in premium will happen immediately. This is why it is crucial to check the rates for a new car before you buy it.
Claims History and Motor Vehicle Report
Your claims history and your driving record both shed light on how responsible you are when you operate your car. If you have a history driving recklessly and disobeying the law, it will show in your records and reports.
The more blemishes that you have on your record, the more of a risk that you are to insure.
Some ask the question, “Why does a speeding ticket that did not result in an accident lead to a rate hike?”. It may not have costed the insurer money, but it did show that you do not obey the driving laws.
This means that are highly more likely to get into an accident some time in the future unless you change your driving habits.
If you have an accident, the only time that your rates will change is if you have been determined to be 51 percent or more at-fault for that accident. If you are not at fault, or you share the fault with the other driver, the accident will not affect your rates. Some states only allow an insurer to surcharge your premiums if damages exceed $750.
If you are surcharged, you could have to pay the inflated price for 3 years starting at your next renewal. It changes at renewal because this is when the insurer reviews your policy and runs your reports.
Where You Drive and How Much You Drive
If you move, change jobs, or suddenly become unemployed, your rates can change. This is because insurers charge you more when you drive further distances and when you drive more often. If you are commuting 20 miles each way to work every day, you will pay more than someone who drives for pleasure.
If you move and your new commute is 30 miles instead of 10, your rates will go up because you are vulnerable more often.
Any changes you make to your commute and annual mileage has the potential to cause your rates to go up.
If nothing has changed and you cannot determine what has led to a premium hike, the problem might very well be a rate increase.
Insurance companies must file their rates with the Department of Insurance. If the department approves a new rate filing before your renewal that causes people in your class to pay more, you could see higher premiums.
Now that you know that there are several factors that make car insurance go up, it is time to start shopping for coverage. You should always compare rates to see if you are getting a good deal.
Use our FREE online rate comparison tool, enter your information, and find out how much the best insurers will charge you for the same coverage instantly.