Chances are, there is a lot your insurer isn't telling you. They may be willing to provide the information you want as long as you ask for it. However, other times, they'll evade your questions in the hopes that you'll eventually tire and give up asking. A lot depends on the type of information you're asking your insurer to divulge. Unfortunately, what you don't know can hurt you (financially) down the road.
We'll take a closer look below at six things your car insurance company isn't likely to disclose without being prompted to do so. Some involve your rates, others involve the compensation you'll receive following a claim. Keep the following items in mind when you talk with your current insurer or when you consider a switch to another carrier.
No. 1 - "We won't tell you how we establish your rates."
Insurers use complicated risk assessment models to help them evaluate the level of risk an individual represents, and how much they should charge that person for coverage. These models are proprietary. Insurance companies won't even share them with each other, much less do so with their policyholders.
A long time ago, rate calculation was much simpler: Fewer factors were used since there was less data available, and fewer tools to analyze them. Today, your premiums are set based on numerous criteria (including your car, living address, driving record, age, and gender).
No. 2 - "You won't receive your car's value if it's totaled."
Suppose your vehicle is totaled as a result of a collision. Will you receive a check from your insurance company equal to its Blue Book value? The truth is, you're likely to receive much less.
When cars are totaled, insurers investigate how much comparable vehicles are selling for in the area. The Blue Book may list your car's value at $24,000, but the same make, model, and year might be selling for only $21,500. You'll receive an amount closer to the latter.
No. 3 - "We hope you pay your premiums monthly."
Paying your annual premium at one time allows you to avoid having to pay finance charges. These are small fees that are added to your monthly or quarterly bill. In most cases, the fees are $10 or less. However, they can add up over the course of a year.
From your insurer's point of view, your willingness to pay monthly is preferable to paying annually. The recurring finance charge represents a profit centre for them. To demonstrate, imagine if 100,000 policyholders paid $10 each month in extra fees. That equates to $1 million a month in extra profit.
No. 4 - "You may be due ‘diminished value’ after an accident."
Suppose your vehicle is two years old and worth $25,000. You get into an accident that results in $3,000 in damage. After having your car repaired, it appears just like it did prior to the accident. Unfortunately, it is no longer worth $25,000.
Prospective buyers are unwilling to pay Blue Book value for vehicles that have been involved in accidents. For example, if you were to try to sell your car, you might receive offers of $20,000 or less. In this situation, you may be entitled to receive compensation for your vehicle's diminished value. Be aware that some insurers are more receptive to such claims than others.
No. 5 - "Your credit can affect your premiums."
Insurance companies learned long ago that there was a connection between policyholder’s credit histories and their tendency to file claims. Thus, they began using credit-based insurance scores to help them evaluate the risk of future claims more accurately.
The scores are calculated based on methodologies designed by the companies that sell them (i.e., FICO). Included in the calculation are data from the policyholder's credit report. It's important to note that a credit-based insurance score is not the same as a credit score. Although much of the data used to compile both values are the same, the methodologies are different.
No. 6 - "We don't offer the lowest rates."
It's unlikely the rates you're paying for your coverage represent the lowest rates available. There are a lot of insurers out there competing for business, and low rates are commonly used as a lure. Your insurance company hopes you'll abstain from shopping around. Instead, they'll try to make it as easy as possible for you to remain loyal to them, even if that loyalty means having to pay more than you would otherwise.
Each year, a month or two before your policy expires, request quotes from several insurance companies. This common-sense advice also applies when you purchase a new car. (You can do so within minutes online.) Compare the quotes side by side. Then, compare them to the premiums you're currently paying. You'll likely find that you've been paying more than is necessary.
Clearly, your insurer isn't telling you everything. Use the information above to reduce your rates while planning for unpleasant surprises.
We'll take a closer look below at six things your car insurance company isn't likely to disclose without being prompted to do so. Some involve your rates, others involve the compensation you'll receive following a claim. Keep the following items in mind when you talk with your current insurer or when you consider a switch to another carrier.
No. 1 - "We won't tell you how we establish your rates."
Insurers use complicated risk assessment models to help them evaluate the level of risk an individual represents, and how much they should charge that person for coverage. These models are proprietary. Insurance companies won't even share them with each other, much less do so with their policyholders.
A long time ago, rate calculation was much simpler: Fewer factors were used since there was less data available, and fewer tools to analyze them. Today, your premiums are set based on numerous criteria (including your car, living address, driving record, age, and gender).
No. 2 - "You won't receive your car's value if it's totaled."
Suppose your vehicle is totaled as a result of a collision. Will you receive a check from your insurance company equal to its Blue Book value? The truth is, you're likely to receive much less.
When cars are totaled, insurers investigate how much comparable vehicles are selling for in the area. The Blue Book may list your car's value at $24,000, but the same make, model, and year might be selling for only $21,500. You'll receive an amount closer to the latter.
No. 3 - "We hope you pay your premiums monthly."
Paying your annual premium at one time allows you to avoid having to pay finance charges. These are small fees that are added to your monthly or quarterly bill. In most cases, the fees are $10 or less. However, they can add up over the course of a year.
From your insurer's point of view, your willingness to pay monthly is preferable to paying annually. The recurring finance charge represents a profit centre for them. To demonstrate, imagine if 100,000 policyholders paid $10 each month in extra fees. That equates to $1 million a month in extra profit.
No. 4 - "You may be due ‘diminished value’ after an accident."
Suppose your vehicle is two years old and worth $25,000. You get into an accident that results in $3,000 in damage. After having your car repaired, it appears just like it did prior to the accident. Unfortunately, it is no longer worth $25,000.
Prospective buyers are unwilling to pay Blue Book value for vehicles that have been involved in accidents. For example, if you were to try to sell your car, you might receive offers of $20,000 or less. In this situation, you may be entitled to receive compensation for your vehicle's diminished value. Be aware that some insurers are more receptive to such claims than others.
No. 5 - "Your credit can affect your premiums."
Insurance companies learned long ago that there was a connection between policyholder’s credit histories and their tendency to file claims. Thus, they began using credit-based insurance scores to help them evaluate the risk of future claims more accurately.
The scores are calculated based on methodologies designed by the companies that sell them (i.e., FICO). Included in the calculation are data from the policyholder's credit report. It's important to note that a credit-based insurance score is not the same as a credit score. Although much of the data used to compile both values are the same, the methodologies are different.
No. 6 - "We don't offer the lowest rates."
It's unlikely the rates you're paying for your coverage represent the lowest rates available. There are a lot of insurers out there competing for business, and low rates are commonly used as a lure. Your insurance company hopes you'll abstain from shopping around. Instead, they'll try to make it as easy as possible for you to remain loyal to them, even if that loyalty means having to pay more than you would otherwise.
Each year, a month or two before your policy expires, request quotes from several insurance companies. This common-sense advice also applies when you purchase a new car. (You can do so within minutes online.) Compare the quotes side by side. Then, compare them to the premiums you're currently paying. You'll likely find that you've been paying more than is necessary.
Clearly, your insurer isn't telling you everything. Use the information above to reduce your rates while planning for unpleasant surprises.