Insurance Scores: How They Relate To Lower Auto Insurance Premiums

Auto insurance provides financial protection to car owners in case of physical damage, body injury, and other liabilities that can arise from traffic accidents. It typically covers medical payments for the injured client and payments for repairs in case of vehicle damage. Some insurance also pays for medical expenses of injured third parties. Damage to third party properties is also covered by insurance. The insurance also covers theft and fire.

For those people looking for auto insurance, it is important to know that they have a way of keeping the insurance premiums low. Insurance companies compute a person’s insurance score in order to measure the risks that the insurance companies have to manage to insure the person’s vehicle. The insurance score is the probability that the car owner will file a claim. It is different from the credit score that financial institutions use to ascertain the person’s creditworthiness.

What Is An Insurance Score Made Of?

Insurance firms have different ways of computing insurance scores. The method is not known to the public and is often guarded much like a trade secret. However, the factors affecting the computation of insurance score is public knowledge. Factors include outstanding debt of the client, credit history, history of debt payments, available credit, total revolving credit as compared to loans, and the monthly balance of each credit. The Fair Trade Commission, in its report to the US Congress in July 2007, supported the use of insurance score as an effective way to predict risks.

Knowing the factors that influence the computation of auto insurance score, a person can now work on improving his/her score. Because the insurance score is based largely on one’s credit report, it is important to pay the bills on time. Limiting the use of credit cards can also increase the insurance score because large credit card expenditures, even though they get paid on time, work against one’s credit score. Improving one’s credit score will also improve the insurance score.

Aside from the insurance score, it is also important to note that there are other factors that insurance companies consider to keep insurance premiums low. Speeding tickets are sure ways to increase premiums by 10 to 15 percent per ticket therefore one must keep those speeding tickets to a minimum. A suspended driver’s license can also increase insurance premium by as much as 40%. For some insurance companies, a record of driver’s license suspension is a cause for rejection.

Other Random Factors

Other factors used in determining insurance premiums include age, marital status and gender of the car owner; the classification of the vehicle; and the car’s mileage. Insurance companies typically charge higher auto insurance premiums for vehicles which are driven by teenagers. These companies also charge higher when the driver is above 65 years old. Men and single people are also charged higher premiums. Insurance companies also charge higher premiums for luxury cars and cars with high mileage.

Auto insurance is a necessity for those people with cars. Being caught without one can result to suspension of the driver’s license, SR-22 and imprisonment in some states in the US. Insurance can be expensive but it pays to have one’s car insured.

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