Mathew B. Sims is Editor-in-Chief and has authored, edited, and contributed to several books. He has been working in the insurance industry ensuring content is accurate for consumers who are searching for the best policies and rates. He has also been featured on sites like UpJourney.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com and Safeco. He reviews content, ensuring that exis...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Apr 22, 2020

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Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.

Things to Remember...

  • A variety of factors including age, residence, and driving history can impact insurance premiums
  • Insurance companies must raise policy premiums to offset the economic downturn of the nation
  • Compare several insurance companies before choosing one from which to purchase a policy

There are many factors insurance companies use to determine premiums.

A few are beyond personal control such as an insured’s gender, age, residence, and perhaps even marital status.

One area that does have a direct effect upon the amount of premium paid is choosing a deductible. People seeking to pay lower premiums can choose a higher deductible.

Other factors include the kind of vehicle to be insured as well as your driving history.

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Rates Explained

Premiums can also be called policy payments and are the amount an individual pays to obtain an insurance policy.

Additionally, whenever a person is involved in an auto accident, the amount of premium required to be paid can increase.

Drivers ticketed for not having insurance will be targeted as greater risks requiring a higher premium payment.

In order to keep premium amounts in check, always make payments on time.

Careless drivers receiving many traffic citations such as excessive speeding, reckless driving or driving  under the influence may also be subject to hefty premium increases.

Despite the reason an insurance policy premium may be increased, the insurance company can only apply higher premiums rates for a three-year maximum.

If your premium was raised due to being in an accident, if you are accident-free for the next three years, your policy premium will be decreased at the end of this period.

Keep in mind that the clock ticking off this three-year period initiates on the date the premium is increased by the insurance company, not the violation date.

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Failure to Pay Increased Rates

Adding the proverbial insult to injury is when the insurance company adds an additional premium increase when an insured fails to pay the previously imposed increase resulting in a lapse.

The premium will again increase, and you might be subject to being dropped by the company. Driving without insurance carries mandatory state-imposed fines, as well.

Individuals driving without insurance or following a pattern of paying late and causing coverage lapses are considered high-risk clients.

Therefore, personal driving habits and payment history also have a great impact upon how insurance companies set premium increases.

Leaving one company for another may not help since when acquiring high-risk status individuals carry this baggage to whatever company they look to find coverage.

Companies Raise Rates Consistently

Logic would seem to dictate that high gasoline prices at the pump would result in a nationwide decrease in driving.

Following the logic, it could be believed that less driving causes fewer vehicle crashes; thus, insurance companies are now experiencing fewer claims.

However, many companies are asking state insurance authorities for huge increases. According to Forbes Magazine online,  automobile insurance rates rose 10 percent between 2008 and 2010.

Yet, just like all other industries throughout the country, the insurance industry is subject to financial demands due to the current economic downturn experienced in the United States.

Rates are going to continue to rise in the near future because of two main factors:

  • Prices do naturally rise in time for any services and goods, so slight auto insurance premium increases are expected
  • Secondly, no one actually can predict when the current economic crisis will end

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Insurance Companies Need to Maximize Profits

Every insurance company management team is tasked with the chore for maximizing profits to benefit stockholders. They take a good, hard look at how Americans are affected by the current poor economy.

While more people find it difficult to afford insurance premiums, companies consistently seek methods for making profits.

Increasing premiums, within the legal limit mandated by the state is one method for creating a profitable bottom line.

The insurance industry seeks permission from states for premium increases citing several reasons validating these requests. Cost for vehicle repairs and medical treatment for motorists involved in accidents is always in the rise nationwide.

Insurance companies claim auto policy rates have been either flat or on the slight decline in the past several years due to vehicle manufacturers including many safety features as standard in current vehicle production.

Nationwide campaigns during the past decade focusing upon drunk drivers have had an additional impact on annual driving safety statistics.

Every company spends a lot of money on advertising claiming to have the cheapest insurance around, as well as the best service.

The best way to make sure you are billed premiums under the legal maximum is to do some comparison-shopping.

When savvy consumers obtain several insurance quotes the truth about which company has the cheapest can be answered.

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Get Quotes for Comparison

Always solicit insurance policy quotes from at least three to five providers.

You do not want to receive quotes from too many companies since the time digesting this amount of information may be troublesome.

Three to five quotes from recommended companies should give you enough to look at and plenty from which to make a choice.

It is important when being interviewed by each insurance company that you deliver the same answers to the same questions posed by each provider.

Make sure to be consistent whether conducting this process online or by telephone.

Service is a Consideration

The focus when examining any insurance policy usually targets premium pricing. You should examine pricing comparing similar policies.

However, one area usually overlooked is the cost for customer service. It is an intangible that’s seldom considered but needs to be.

  • How does a prospective company handle claims?
  • Does the process demand a great deal of your personal time?
  • Is there a streamlined, automated service that actually cuts down on the time spent involved in the process?

Check with the Complaint Department

Never make a policy buying decision without first checking a prospective company’s complaint handling record.

Perhaps a specific company can afford to offer low premiums far below the state legal maximum because its customer service is lousy or non-existent.

Always do a quick check with the local Better Business Bureau or the State Department of Insurance to see what types of complaints and frequencies an insurance company has experienced.

You can check the company’s financial standing by checking with A.M. Best; which rates providers. A good rating would be A+ or better.

In addition, check with J.D. Powers for a company rating compiled based upon input from both previous and current customers.

Type your ZIP code into the FREE search tool on this page to compare auto insurance quotes and policies from several companies!