What Causes Your Insurance Premium to Go Up?
If you have any type of insurance – whether it’s for your home, car or health – chances are you’ve received a renewal bill in the mail and asked yourself, “Why did my insurance premium go up?” While some premium increases can be attributed to across-the-board rate hikes, which happen when an insurer and state department of insurance agree on a new rate plan for that year, others have more to do with you specifically – caused by factors such as your driving record, medical history and credit score.
Why Did Insurance Premiums Go Up?
Actuaries use mathematics, financial theory and statistics to forecast the cost and probability of an event. In the insurance industry, actuaries spend a lot of time trying to predict how likely customers are to file a claim. The higher the probability, the more they can justify charging you higher insurance premiums. It’s the first of several reasons why your premiums might have risen.
Having a Claims History
As far as insurers are concerned, a history of claims increases the odds that you’ll make another one. Home insurers, for example, share information about claims from the last seven years through the Comprehensive Loss Underwriting Exchange (CLUE), which can boost your premiums even if you weren’t the homeowner who made the claims. Car insurance claims are also registered by CLUE, and your rates may increase if you’ve made a lot of claims – even if you weren’t at fault – because you pose a higher risk, statistically speaking.
Low Credit Score
Lenders evaluate your credit score, among other things, to estimate your credit risk and ability to repay a loan. As it turns out, auto insurance companies also look at your credit score, but for a different reason: They have determined that people with low credit scores are more likely to get into accidents than people with high ones. As a result, they might charge more if you have a lower credit score (some states, including California, prohibit insurers from using credit scores when setting rates). That’s one more reason to keep an eye on your credit score and improve it, if necessary.
While it makes sense that your driving record would affect your car insurance premiums, it may come as a surprise that those moving violations can also bump up your life and health insurance rates. If you’ve had more than two moving violations in the past three years – including speeding, reckless driving and driving while intoxicated and/or driving under the influence (DWI/DUI) – life insurers consider you a higher risk for auto fatalities, which means they have a higher chance of paying out. Also, if you’ve had a DWI/DUI in the past, you’ll likely pay higher premiums (and higher deductibles) for health insurance, and you may even be denied coverage altogether if you’re labeled a “high risk” client. (For more, see 12 Car Insurance Cost-Cutters.)
If you move, you could see an increase in insurance premiums. A study by CarInsurance.com, for example, showed that a 40-year-old man with a 2012 Honda Accord and a clean driving record would pay about $730 per year if he lived in Bullhead City, Ariz., but his premium would jump to $1,280 a year if he moved a few miles away to Laughlin, Nev. Similarly, health insurance rates can increase depending on zip code, cost of medical care in the area and population health factors, such as the local obesity rate.
The Bottom Line
For many the big question is “Will my rates automatically increase if I make a claim?” The short answer is that it depends on who or what is at fault. A single claim will not normally trigger higher rates for homeowner policies, but two in three years probably will, although it depends on the insurer. However, most companies won’t raise rates if the claim results from severe weather or some other catastrophe. (For more, see How Are Home Insurance Rates Determined?)
If your car was damaged because a reckless driver slammed into you or a tree fell on your parked vehicle, your rates probably won’t go up. It’s another story if you were at fault, in which case you’d probably see an increase when it comes time to renew your policy. Your driving record also comes into play. If you have a clean record with no tickets or incidents in recent history, a minor fender bender probably won’t affect your rates. Likewise, if you get your first speeding ticket in 20 years, you might get a hall pass on a rate increase (unless, of course, you were driving way over the speed limit, in which case you’ll probably pay more).