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How is My Arizona Car Insurance Premium Determined?

ImageThat’s a great question and one that can save you a lot of money if you take the time to understand the factors used by insurance companies to derive your rate.

  • Your Driving Profile.  The items of information that comprise your driving profile include your MVR record of accidents and tickets, as well as how many miles you drive annually.  If you drive five miles per day to work, your premium will likely be less than someone who commutes 50 miles per day.  And, obviously, if you’ve had several at-fault accidents or speeding tickets within the past 36 months or a DUI within the past five years, your rates will be higher – as the insurance company considers you a higher claims risk.
  • Your Personal Information as it Relates to Actuarial Tables.  The insurance companies spend a lot of time and money evaluating data and compiling it into actuarial tables.  They have a pretty good idea of the claims likelihood of someone in your age rage, with your occupation, living in your area.  They have created detailed statistics regarding trends for accidents and auto thefts in your area, as well as the average costs for car repair and healthcare for your city.
  • Your Credit Score.  According to the Insurance Information Institute, how a person handles their finances is an accurate reflection of the frequency and size of their insurance claim history.  With the economy the way it is right now, many people who once had great credit are being turned down or surcharged for standard insurance because their credit rating has taken a hit.  Go Time Insurance specializes in offering nonstandard insurance (click the link to read our article explaining the difference).  Most of the carriers we use don’t use credit scoring, but rather use “insurance scoring,” which evaluates your insurance history and stability when determining your rate.  We even have a few carriers we offer who don’t look at either credit or insurance scoring.  These are a great match for our clients who have issues with both credit and insurance history (like previous cancellation for non-payment, or cancellation and reinstatement with lapses).
  • The Car You Drive.  While it’s pretty obvious that a high-end sports car would probably cost more to insure than a modest four-door compact, there are other factors that are not so obvious that go into determining the cost to insure your car.  I recommend you give us a call and tell us the make and model for any cars you’re considering purchasing.  Knowing the insurance rate can be a deciding factor in helping you determine which car would be the best choice for you.
  • Amount of Coverage.  It’s important to have an adequate amount of coverage to protect your assets, but it’s equally important that you don’t purchase more coverage than you actually need.  If you own a home with a lot of equity in it (don’t laugh – it’s just an example), you would want to make sure that your coverage limits are at least equal to the amount of equity in your home.  Otherwise, if someone makes a claim against you for an at-fault accident and your auto policy limits are inadequate to cover the claim, your personal assets could be exposed.  Of course, your homeowners policy would be next in line for any claims.  So, it’s important to reduce liability exposure by coordinating your auto and homeowners policies to insure adequate coverage.
  • The Deductible You Select.  Regarding deductibles, the higher your deductible is, the lower your premium will be.  Keep in mind that you should always select a deductible amount that you can live with.  If it would be difficult for you to come up with $1,000 to make up your part of any physical damage repair to your car, then perhaps drop it down to $500 or even $250.  However, if you could live with a $1,000 deductible, you’d be looking at as much as 40% reduction in the comprehensive and collision portion of your premium.
  • To “Full Coverage” or Not to “Full Coverage.”  Removing the comprehensive and collision portion of your coverage sometimes makes sense when you’re driving an older car.  The statistics on comp and collision claims are that those who carry it make a claim an average of once every 11 years.  And, even so, a total loss only occurs about once every 50 years.  If you multiply your premium for comp and collision by 10 and arrive at a number that is more than what your car is worth, you might consider dropping the comp and collision portion of your coverage and putting that amount into savings instead.  It all depends on your comfort level for doing so, though.  Everyone involved – you and your carrier – are both making calculated decisions regarding risk, and everyone is hoping to come out financially ahead regarding their decision.

I hope this has helped you to understand a little bit more about how your rate is determined.  If you decide to shop around for auto insurance quotes, make sure you are comparing apples to apples in terms of coverage, deductible, and financial rating for the insurance companies you’re considering.

If you live in the Phoenix area and need any assistance reviewing your coverage, please feel free to contact us anytime for a no-obligation, no pressure review.  We’d love to assist you with any information you need.

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