The vast expanse where auto insurance has spread its influence has resulted in auto insurance turning into a very complex thing. There are so many terms and conditions, rules, and factors that affect auto insurance. Take car insurance rates as an example. Countless factors can affect auto insurance rates. But why does this price difference exist? Most importantly, what are some prominent factors that affect the rates of vehicle insurance policies?
Out of all the different factors, one of the most confusing factors is age. You may have noticed that younger people are charged more for the same policy than older drivers are charged. But why? Why do new and young drivers pay more for insurance, including car insurance for young drivers? Let’s find out.
Auto Insurance and Risk
The entire business of auto insurance companies works based on risk management. This means that to car insurance cheap liability companies, managing risk is the number one priority. But how does risk management help them make money? Here’s how everything works.
When you buy a car insurance policy, for example, a collision damage waiver, the auto insurance company is charging you money to take your part of the risk. Without a collision damage waiver, you’ll have to pay for the repairs of your car if you get in a car accident. Your risk, your expenditure.
But when you buy a car insurance policy, the risk of getting in a car accident is still yours, but the expenditure becomes the car insurance company’s part. If you get in a car accident, they’ll pay for the repairs of your car.
Of course, these companies would run into the ground if all the policyholders made an insurance claim. This is why they need to manage risks properly. To be successful, these companies need to make sure that most people pay insurance premiums timely, while the number of insurance claims remains to a minimum. Fewer claims, and more insurance premium payments, this is what vehicle insurance companies want.
Now that we know how auto insurance companies work, here’s where the problem begins. Auto insurance companies cannot be selective in allowing people to buy their policies. Car accidents are inevitable, and some people are more likely to be in one than others.
Since auto insurance companies cannot deny selling policies to people who are more likely to be in a car accident, they find other ways of mitigating the risks of an insurance claim. These people (who are more likely to be in a car accident) are called “high-risk” individuals.
High-risk individuals are charged more than normal people to offset the risk of an insurance claim. Since statistically, these high-risk individuals are more likely to be in a car accident and make a claim, companies choose to charge them more from the get-go.
So if your driving record says that you do not wait like others at the traffic stop, or perhaps you have a knack for driving under the influence of alcohol or other drugs, your insurance company would charge you a lot more than normal. From a simple speeding ticket to serious DUI charges, everything can increase your car insurance rates.
Different companies take these factors differently. Your state of residence also makes a lot of impact on the pricing of your policies. For example, if you live in Indiana, you might pay a lot more for car insurance as the rates are very high due to high population density and repair costs. Look for the best cheap car insurance in Indiana to find great car insurance companies and save some money.
Age and Insurance Rates
Driving records, DUI charges, speeding tickets, etc all make a lot of sense when it comes to their impact on auto insurance rates. People who drive recklessly are more likely to be in a car accident. But then where does age come in this? And why?
Statistics is the answer to all your auto insurance rate confusion. If you are a young and new driver, annoyed at the inflated insurance rates, just take a look at the statistics of road accidents in the US.
Here’s what the statistics say; People who are under the age of 25 cause the most number of accidents in the US. Even though the number of drivers under the age of 25 is very less, the number of accidents they cause goes to a high peak. Younger drivers are also more likely to drive under the influence, get speeding tickets, drive rashly, etc.
Out of all the young drivers, teenage drivers (age 16 to 19) are some of the most notorious ones. This is due to their inherent adventurous nature, a knack for disobeying the law, and limited driving experience. All this is a nightmare for an auto insurance company that’s trying to minimize the risk of an auto insurance claim.
Other than the high risk of accidents, younger people also have a poor credit scores. This indicates a possibility of them missing an insurance premium payment. This makes car insurance companies even more cautious and hence, they charge more to young and new drivers. But is there a solution to this problem?
How to Save Money on Auto Insurance Policies as a Young Driver
First of all, if you are a young driver, you need to accept that in the beginning you’ll be charged more. There’s not much you can do about it other than comparing different car insurance companies and selecting the best policy at the best price.
Other ways of reducing the costs would be by increasing the deductibles, driving carefully, and maintaining a clean driving record. Taking defensive driving classes or something similar (something your auto insurance company recommends) would also help in lowering the insurance rates. Other discounts include good student discounts that will help you save a little extra if you get good grades.