Life is a Highway!: How insurance premiums are calculated.

I have a 2 year old nephew, and when I go visit his parents, they will sometimes put a movie in for him to watch. He’s got a few favorites: “Toy Story”, the Thomas series (trains with faces), and “Cars”. I have to admit that I really didn’t think I would like Cars. I thought the concept of talking cars (after Knight Rider) was stupid. So one day, I went to my sister in-law’s house, and guess what was playing? I sat down to watch the movie, and it wasn’t bad.

If anyone has two year-olds, you know they go through phases where they can only be appeased by watching the same thing over and over (and over and over) again. This is the case with my nephew. I wound up watching the movie three times in succession. Maybe I’m suffering from some Pixar Stockholm syndrome, but I really like that movie now (the movie loves me, I want to watch the movie. The movie would never hurt…,)

Anyways, aside from talking about Disney movies I like, there is a point to this post:

Insurance.

We all have to have it, and it costs a lot of money, blah, blah, blah. But how are premiums determined? What goes into the amount I have to pay every six months? Glad you asked.

1. Age—Sorry people, but if you are under 30, you are going to be paying more for insurance than the 30-something crowd.

2. Gender—Guys, this one is your own fault. Let’s look at this logically. Women drive to get somewhere. They tend to be more timid about their surroundings, and if someone else can drive them there, they get to be the passenger. Guys however, drive to prove a point. We dominate the road, and we do it as fast as possible. Without clarifying too much, even cars with automatic transmissions are driven with a ‘stick’ when a guy is behind the wheel.

3. Car—Statistically, the more expensive your car is, the more you are going to pay in insurance coverage. That’s because it costs the insurance more money when you do make a claim. Second, there are some types of cars (sports cars) that tend to get into more accidents than others.

4. Location—If there are more cars on the road, there is a better chance that you will either hit or be hit by one. Dense cities charge more for insurance than do rural farm communities.

5. Miles driven—Much like number 4, the more you drive, the better chance there is of hitting something. The magic number here is 12,000.00. More than that, and you will be paying more in premiums. Significantly less than that and you might see a discount.

6. Driving record—Insurance companies hate to pay claims. If you file a lot of claims, they recoup their losses by charging you more. If you file a lot of claims, most companies will just drop your coverage, making you look elsewhere. Tickets come into play here also. If your driving patterns earn you tickets, you are probably not a safe driver (good risk) in other ways as well.

7. Credit Score—A lot of consumer groups have a problem with this one, but I’m okay with it. Here’s how it works. Insurance companies believe (and they are right more than not), that a person who takes good care of their finances and credit rating will also be better insurance risks. To give an example: A person who doesn’t pay their credit cards on time probably doesn’t care about their credit rating. If that’s true, why would you believe they care more about their insurance rating?

In a nutshell, this is how insurance works. You are betting that you will get into an accident, and the Insurance company is betting that you won’t.

I’ve never been so happy to lose a bet!