Why Do Insurance Rates Vary?
What Makes Different People Higher Risks for Insurance Companies
Nov 23, 2008
Insurance companies base rates on claim statistics. The first things they look at are the people they are insuring. Statistically younger drivers get into more accidents. The same is true for males, unmarried people, less educated people, people with low credit scores and those who drive sports cars and motorcycles. As a result, these people pay higher insurance rates.
Why Insurance Rates Vary
Insurance rates vary significantly depending on where the insured person lives. If a particular neighborhood has an historically large number of claims due to burglary, fire, weather damage or car theft then insurance premiums are higher. Another neighborhood a mile or two away could have much lower insurance rates even though it does not seem much different. It all depends on the number of claims that are filed in that zip code.
What Makes Insurance Bills Higher
Insurance companies function by balancing their risk and their reward. They are willing to risk more only if the reward is greater. Insurance rates vary depending on the cost to replace or repair the insured item. A new and expensive house or car will cost more to insure than old and cheap ones. This is because it wont cost the insurance as much to replace or repair an inexpensive house or car.
Insuring Different People
Higher insurance rates are charged when property is more likely to be lost or damaged. Some popular vehicle models are often stolen for parts. Some modestly priced homes are more likely to burn down because they have wooden shingles on the roof. These may cost more to insure than more expensive cars and homes.
Different People Pay Higher Insurance Bills
Insurance rates vary based on the risk potential of the individual. Many insurance companies weigh a person's own record heavily when determining rates. A newly insured person could be a good risk or a bad risk. Since insurance companies don't know what to expect, new customers pay higher rates. People who have been insured with the same company for years and had few or no claims are rewarded with much lower insurance rates. Clients who file lots of claims pay higher premiums or get their policies canceled.
Different Insurance Rates
Different insurance companies consider the criteria for determining rates differently. This is why premiums can vary so much from company to company. They use different formulas, look at different statistics and weigh different factors more heavily.
Insurance Company Policy
Some insurance companies have more resources in certain parts of the country or a certain sector of the insurance market. This allows them to offer more competitive rates there. Sometimes insurance companies compete to enter a particular segment of the market and slash rates to gain market share.
