When should I shop my auto insurance? Have you ever asked yourself that question? The rate, or premium, you pay for your auto insurance should be based on what kind of driver you are, right? If only it were that simple. Understanding how your auto insurance premium is calculated can be a complicated subject and our agents make it easy to understand.
Auto Insurance Pricing 101
Like the image above, insurance companies have created very sophisticated ways to come up with the premiums they charge for auto insurance. We aren’t going to go into the details, after all they guard these secrets just like Colonel Sanders guards his KFC recipe, but we will help you to understand a little bit more about how they come up with your premium. And, more specifically, we’ll talk about when you should shop your auto insurance and what a difference timing can make.
When should I shop my auto insurance? (Ok, if you just want to start quoting, click here)
Believe it or not, there is a cost of doing business for insurance companies, just like any other business. And…surprise surprise, insurance companies are for-profit companies. They know how much it costs them to acquire a new customer and for this reason they also pay attention to how long you have been with your current company. If you switch your insurance to XYZ Insurance Company they would like to keep you as a customer for as long as possible.
If you shop around every 6 or 12 month renewal term, the insurance companies are not going to offer you their best rates. These “longevity or tenure” discounts are reserved for shoppers that don’t move around as much. The biggest discounts are usually given to someone that has been with their current company for 5 years or more. So if you’re asking yourself, “when should I shop my auto insurance”, we usually say that it’s best if you’ve been with your current company for at least 3 years.
Insurance companies like people that are financially responsible because it means that you’re less likely to file a claim. Their studies show that people who wait until the day before to switch their insurance are less financially responsible than the person that starts the process several weeks before their renewal. Again, to answer the question when you should shop your auto insurance, start the process at least 2-4 weeks before your actual renewal date.
Other Rate Factors
As you well know, your tenure and how early you shop your auto insurance are not the only factors that go into generating a premium from the insurance company’s little black box. Below are a few more of the most common, and important, factors that go into calculating the premium you pay.
This is one of the most important parts of calculating your premium. Basically, the company is going to look at your last 3 to 5 years of driving experience to get a better idea of what kind of risk you are behind the wheel. If you have at-fault accidents, speeding tickets, cell phone tickets, stop sign / red light tickets, then you’re going to pay a higher premium. Statistically, chances are that if you’ve had one claim or moving violation you’re going to have another.
Most states allow insurance companies to use a person’s credit history as a piece of the rating formula. According to insurance companies, people with higher credit scores are less likely to have future claims and people with lower scores are more likely to have future claims. So, if your credit score has changed significantly for the better since you last started a new auto insurance policy it may be a good time for you to shop.
This is still a somewhat controversial topic, although most drivers are used to this by now. Check out this page from the NAIC (National Association of Insurance Commissioners) for more information about credit scoring and insurance.
Insurance companies also find that men & women, young & old, married & single also have differences in how many and the kinds of claims they file. For these reasons, your gender, age, and marital status will also play a small part in the premium you pay.
Where you live
Let’s face it, some parts of your city are just better than other parts. Insurance companies pay very close attention to the number of claims and the types of claims that are paid out zip code by zip code. Sometimes they have specific premiums for individual zip codes and sometimes they group larger areas together. Premiums also vary greatly based on what state you live in.
So if you’ve recently moved and are asking, “Should I shop my auto insurance?”, the answer is a big YES!
Obviously, the type of vehicle you drive is going to determine a portion of the premium you pay. Things like the new cost of the vehicle, the age, the brand, and the performance will impact your premium. Let’s dispel a myth right here though, the color of your car does not affect the premium you pay. If you really want to know what the most expensive car to insure is, check this out! (If only we all had that problem to worry about, right?)
So if you’ve recently bought a new car or paid off your car and are asking, “Should I shop my auto insurance?”, again the answer is a big YES!
Anytime is the right time to review
Whether or not your policy is renewing right now, one of our agents is happy to review your policy. Sometimes their advice may be to stay where you are until a certain time. But, more often than not, our agents can help you find areas to improve your coverage for the same or less premium. Now isn’t that what a good deal is all about?