Jun 08
adminArticles Actuaries, Ambulance Crews, Auto Insurance, Bad News, Firefighters, Health Insurance, Insurance Companies, Insurance Company, Insurance Quotes, Insurer, Loyalty, Premiums, Probability, Right Direction, Risk Assessment, Safe Car, Time Of Day, Unfortunate Accidents, Vehicle Insurance, Wonks
The main thing to understand about discounts is the thinking behind them. The insurance companies want to encourage you to act in ways that favor them. If you are contrary and do the opposite, you will probably cost them money so your premium rates will be higher. Let’s take a few examples and see how it works. Obviously the point of insurance is that, if you have one of those unfortunate accidents or someone steals your vehicle, you get to claim money from the insurance company. From the insurer’s point of view, this is bad news. It wants to be able to treat all your cash as profit. The more it has to pay out, the more it should raise premiums. Except, at some point, you throw up your hands and say, “We’re not going to pay that.” So a balance has to be struck. The insurer wants all the safe drivers like you, and aims to discourage all the drivers with bad records – they are the ones who get the really big premium hikes. Although loyalty bonuses go some way in the right direction, there are more ways in which the insurer can save money. It all starts with the make and model of vehicle you are driving.
Risk assessment is done by the actuaries. These are the math wonks who collect details of every accident reported in the US. This is not just the data from claims on vehicle insurance. This is every incident reported to the police, attended by the firefighters or ambulance crews, or dealt with through claims on health insurance. Put all this together and the actuaries can tell you the probability of an accident in any make and model of vehicle, given its color, whether it was fitted with any additional features, who it was driven by, the time of day or night, whether the driver and passengers were badly injured, so on. Yes, it’s that detailed. Turning this around, if you drive a vehicle that’s statistically unlikely to be involved in an accident or stolen, your premium will be lower than average. Put a safe driver in a safe car and the chances of the insurer having to pay out are small and the profit is higher. Everyone is happy. So how do you find out which are the safest vehicles with the lowest premium rates? Well, you start with http://www.safercar.gov/, a site run by the National Highway Traffic Safety Administration. This allows you to get the safety ratings from all the tests carried out by the NHTSA. There’s a guide published at http://www.nhtsa.dot.gov/staticfiles/DOT/NHTSA/Vehicle%20Safety/Articles/Associated%20Files/2009_Insurance_Costs_Comparison.pdf which is also helpful. Finally, the Insurance Institute for Highway Safety publishes its own list of safe vehicles at http://www.iihs.org/ratings/
The safer the vehicle you drive, the greater the discount on the premium rate. So when you are filling out the questionnaire for those auto insurance quotes, aim to have a safe vehicle. If you vehicle is not safe and you cannot afford to change it, try to upgrade it by fitting safety features. Look at the questions asked in the questionnaire and talk to insurance agents to find out what features save the most money. Similarly, fit better locks and any systems making your vehicle more difficult to steal. Anything you can do to reduce the risk of a claim will be reflected in low rates in the auto insurance quotes you receive.
Apr 16
adminArticles 1 Million, Bet, Cheap Car Insurance, Cheap Insurance, Deductibles, Fairness, Fender Benders, Insurance Company, Insurance Policy, Insurer, Liabilities, Losses, Minor Fender, Odds, Premium Rate, Public Roads, Risk Assessment, Self Insurance, Traffic Accidents, Wager
The easiest way to understand how an insurance policy works is to think about gambling. You are about to drive your vehicle out on to the public roads and you make a bet with the insurance company. If you can do this without having an accident, you lose the premium. If you have an accident, the insurance company pays your losses. So, as with a field of horse about to set off round the track, the bookmakers check the records of each horse. How many times has it run and placed. This gives them a basis on which to set the odds. In theory, everyone has access to the same information so you decide whether to place the wager depending on the fairness of the odds quoted. Well, it’s exactly the same with drivers. The insurers make a risk assessment of you as a driver. What make and model are you driving? How many miles a year do you drive? How many years of experience? How many tickets and claims? This profiling gives them the odds of an accident and the company sets the premium rate to quote you. You also know your own track record and have a good basis on which to decide whether to pay the premium.
Unlike a conventional bet, you can decide to self-insure a part of the potential liabilities. This is done through the so-called deductible where you pay the nominated amount before the insurer has to contribute. So if the claim against you is for $800 and you have a deductible of $1,000, you pay the whole of the $800. But if the claim is for $1 million, you only pay $1,000 and the insurance company loves you like a brother. The majority of traffic accidents are minor fender benders and the repair costs are usually low. If no-one is injured, self-insurance is a cost-effective option, i.e. the amount you save on the premium covers the likely payments of claims. But you should consider the issues carefully before accepting the maximum deductibles. Suppose you have a bad run of luck and, in the space of a year, you are involved in three accidents where the claims exceed the deductible. Now you have to find the deductible multiplied by three as a cash sum and your premiums will go up because you have proved yourself a bad risk. Can you afford the pay this lump sum without breaking the bank? Given your premiums are going to rise, do you still want to pay the maximum deductibles in the future?
Planning is all about the worst case scenarios and hoping for the best. There are good discounts for increasing the deductible. There are also good discounts for insuring more than one vehicle or combining both car insurance with home insurance. Because you cannot guarantee you will never have accidents, you should decide what discounts you can find and how much you are prepared to pay if the worst happens. Do not simply buy the cheapest car insurance you can find. In many cases, these policies do not give a good value-for-money cover against liabilities. Shop around and buy the policy that gives you the best protection at a price you can afford.
Mar 07
adminList Insurance Algorithm, Car Insurance, Countries, Initial Risk, Insurance, Insurance Premium Tax, Insurer, Knock On Effect, Levy, List, Lot, Pay Taxes, Percentage Terms, Premiums, Quotes, Radar, Risk Assessment, Running Costs, Taxation, Taxes, Value Added Tax, Vat
In many countries you have to pay a range of taxes on all services and products. What you may not be aware of though, is that your car insurance is also subject to the same taxation.
Value added tax, better known as VAT, is one of the most recognisable taxes. This is applied to almost all products, apart from hand-picked essentials. Unfortunately for all drivers, car insurance is certainly not exempt.
This has seen many policy holders have to pay significantly more in the past year or so, particularly in the UK where the rate of VAT has increased from 17.5% TO 20%. Whilst in percentage terms this is a minimal jump, when you’re already paying hundreds if not thousands for a policy for your vehicle, this can have a huge impact.
The second form of tax that is commonly applied to car insurance is the Insurance Premium Tax.
This doesn’t include a lot of long-term forms of cover, but for most drivers there is a 6% levy applied to all policies. Again, this isn’t a huge amount, but when added to the VAT and other calculations that go into a quote, it can make a big difference.
Insurance Premium Tax is another area where there have been quiet increases in the recent past. Unsurprisingly it probably slipped under the radar of most, but in the UK it was increased from 5% in 2010 to 6% in 2011. This has added another few pounds to the running costs of a vehicle and has seen many premiums remain reasonably flat this year, with insurers having to pass on the costs to customers.
In the most part, these taxes are absorbed within the policy, which is why many drivers simply aren’t aware that they exist. Any costs are applied to quotes after the initial risk assessment is carried out. Therefore when you apply and fill in all of your details and those of your vehicle, the insurer in question will approximate the cost based on these factors and their own algorithm.
The higher your supposed risk, the more you will be quoted. The knock on effect of this can be quite substantial, particularly in light of the aforementioned taxes and their respective increases. This is why it is important that all drivers are careful to preserve their no claims bonus and look to avoid unnecessary risk – such as parking on a street rather than on a secured driveway.
Taxes are an unavoidable part of life and most countries will have their own policy when it comes to applying them to car insurance. Therefore levels of taxation and the amount insurers charge is likely to vary quite considerably from province to province. VAT for instance is highly variable, with many governments imposing levels either side of the United Kingdom’s current rate of 20%.
They are all subject to change of course. Perhaps not as frequently as your fuel duty, but as annual budgets roll around, so too does the possibility of an increase in your car insurance policy and the taxes therein. This is out of the hands of insurers of course, with their only input being how much the basic cost of a policy is, just like any other product or service.
So, to briefly summarise, the two main taxes that are applied to all car insurance policies in the UK are Insurance Premium Tax and Value Added Tax. The former of these is around 6%, whilst the latter currently sits at 20%. Both are variable and have seen significant changes within the last year or so.
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