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How are Insurance Rates Determined?

By on March 15, 2014 in Insurance

How are Insurance Rates Determined?Getting a quote for a term life insurance, car insurance, homeowners insurance, or a health insurance quote is a lot easier than it used to be. You simply go online, put in your personal details, and within 24 hours – if not instantly – you have a fully priced out quote to do a price comparison.

It is a great way to save a ton of money on insurance.

But have you ever thought what exactly goes into pricing out your quote? Sure there are some policy specifics. For term life insurance they are going to take into consideration your age and if you are in a risky occupation.

Yet those details are just a piece of the insurance quoting puzzle. Regardless of the type of policy there are personal factors about you that the insurance company wants to know to price your policy correctly.

What are they?

What Factors Go Into My Insurance Rate?

Some of the factors that influence your insurance rates might seem unfair. The company has teams of analysts that are constantly looking at huge amounts of data to correctly price their exposure to risk and loss, and these factors inevitably are included.

You shouldn’t take it personally. The insurance company doesn’t know you like you know yourself. They don’t know you are the most responsible person on the planet, so they have to make some assumptions based on other data.

Credit Score

Your credit score is a pretty good indication of who you are as a person, what kind of decisions you make, and if you are responsible with your funds.

It isn’t perfect, that’s for sure. Things happen. Emergencies wipe out our bank accounts and bills go left unpaid.

But as a general rule if you have a higher credit score you are likely to be a lower insurance risk. You’ve shown stability and responsible decision making.

Where You Live

A huge influence on some of your insurance rates is simply where you live. If you move to a different zip code just down the street it might cause your rates to jump or fall based on your current zip code. If you live in a higher claim area or on the wrong side of the tracks, your insurance rates might be higher than they would be otherwise.

I have personally experienced this. A few years ago my area was hit very heavily with bad storms with lots of damaging hail. It seemed that every roof in town was being replaced and half the siding of every home was damaged. Twelve months later my homeowners insurance quotes are significantly higher. Every insurer took a hit replacing all of those roofs and now I live in a higher risk area than I did before all of those storms.

Loss or Claim History

Lastly, and this one shouldn’t be as big of a surprise, is your own personal loss history will impact your future insurance rates. If you are constantly getting in wrecks you should expect your auto insurance rates to go up significantly. Insurers will see you as a large risk which they will need to compensate for in their rate to you; that is assuming they will even consider insuring you at all.

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