By: Laura Walton AFC®
I meet with a lot of young adults through our 3rd Decade program and I’ve noticed what they pay for auto insurance is all over the map. So I was relieved to see the recent story in the Arizona Daily Star that reported just that – the headline read “You could be paying twice as much for car insurance as a similar driver”.
Example? Auto insurance for an 18-year-old single woman ranged from $1700 to $3800; a married couple ranged from $664 to $1886!
Not only are rates wildly different, they are inconsistently different. One company might give one person a reasonable rate while another person gets something out of the ballpark.
Here’s the deal. Each company uses a different algorithm to predict risk so you may be considered a low risk driver with one company but not another. And, companies with lower rates may have more customer complaints…something to consider.
Apparently the variations found in the Tucson market are similar to those in other markets. The Director of Insurance of the Consumer Federation of America said “Auto insurance rates throughout the country make no sense.” That’s comforting.
What to do? Shop your rates. I often refer people to the State of Arizona Department of Insurance website. They’ve shopped all Arizona insurance providers and offer a comparison chart based on some typical scenarios (a married couple, a single young adult, etc.). They report both cost and complaint ratios.
In fact, it seems that insurance companies penalize us for not shopping rates. They use what’s called “price optimization”. They assess your price sensitivity and price your coverage accordingly. Apparently, insurance companies share the same loss data base which allows them to see when other companies check your data. In fact, one client told me her provider lowered her price without her asking soon after she’d shopped her coverage.
And, insurance costs are also reflective of our credit scores. We tend to think about our credit scores when we borrow, but a low credit score bumps up your premium. The providers see a relationship between poor credit and risky drivers.
There’s a bunch of other factors to consider. If you have an adequate emergency savings account, you can increase your deductibles. If you take the advice of the Millionaire Next Door and drive an older car, you coverage will cost less. Check out Consumer Report’s Car Insurance Buying Guide.
I shopped our homeowner’s/auto/umbrella policies and didn’t find much difference…except for the homeowner’s which was 50% less!