Why do car insurance companies ask for a driver’s license?

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Things to Remember...
  • A driver license is an official document that grants the person the right to operate any private passenger vehicle within the state or the country
  • In order to be issued a driver license, you must pass a written exam, a driving exam, a vision exam and pay a fee that pays for administrative costs
  • Insurance companies require applicants to possess a driver license to be listed as a primary operator on an auto insurance policy
  • Carriers require either a state issued license or an International Driving Permit so that they can assess driving habits and charge for infractions and other serious violations
  • Auto insurance underwriters review motor vehicle records to set personalized rates for the risk a driver presents

You need much more than just a car to buy a standard auto insurance policy, you’ll also need an insurable interest in that vehicle and a driver license.

Since you don’t necessarily need a driver’s license to title a car in your name as the vehicle’s owner, it can be a cause for concern that most carriers actually require their applicants to possess an active license before they’ll extend an offer for coverage.

While there are exceptions to this rule, in most cases, you do need a driver license to buy car insurance. If you’re wondering why this is a common requirement for standard auto coverage, read this guide and learn more about how licensing.

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When will an insurance company ask about licensing?

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You will typically be asked for your licensing information and details about your driving history when you’re looking for insurance quotes. This information is specifically used to assess risk and to classify the driver.

While what’s specifically used can vary from company to company, here are some of the most common licensing questions an agent or quoting form might ask you for:

  • State where you’re licensed and license number
  • Whether or not your license has been suspended or revoked in the past 3 to 5 years
  • The age you were licensed (in states that allow this to be used by insurers)
  • The total number of years you’ve been licensed in the US or other countries for merit-based rating (may be asked for proof of international licensing)
  • Your license class
  • If you’ve been convicted or moving violations or other serious infractions in the past 5 to 7 years

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How do auto insurance rates work?

How premiums are set is referred to as the rate-making process in the insurance industry.

When rates are made by the carrier, the carrier takes into account how much they’ll need to charge in pure premium for a unit of coverage and how much they’ll need to collect to cover overhead expenses and to stay profitable.

After rates are determined, the company then takes on the task of assessing the risk that a single household presents by providing quotes and then underwriting applications.

The company uses several different rating factors and risk determinants to predict the likelihood that an applicant will file a claim during a single term. Each determinant affects price in a different way.

Here’s a list of the most common rating factors that’ll be looked at to give you a price estimate:

  • Your individual driving record including moving violations and claims history
  • Age, marital status and years of driving experience
  • Garaging location or territory where the vehicle is stored
  • Vehicle type and safety rating
  • Number of miles driven annually and to and from work
  • Vehicle usage (pleasure, commute or business usage)
  • Voluntary driver education courses or Good Driver Discounts
  • Credit score and insurance score
  • Number of cars owned

What does a driver license do to help insurers underwrite applications?

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While you do need a driver license or, at the minimum a provisional license, to operate a vehicle, this isn’t the main reason why carriers require a license number on an insurance application.

The reason a driver license is an underwriting requirement is because of what it tells the insurer about the applicant.

While it would be nice to think that each and every person that applies for insurance is forthcoming and honest about their driving history, if the information wasn’t ever verified then it’d be tempting for people to be dishonest about tickets and accidents.

By requiring their applicants to provide their license, it’s easier for the company to verify that the picture the applicant has painted of their driving habits is honest. Here are some of the ways that a driver license is used for ratings:

  • The underwriter runs an electronic motor vehicle report to find out if there’s any suspension, revocations or infractions on the driving record that can affect rating
  • The underwriter runs a C.L.U.E. report with license number to see if any claims have been filed under the driver’s name
  • The underwriter will use the age licensed or number of years licensed to assess experience credits the driver qualifies for

When do insurance companies offer insurance to unlicensed applicants?

There are exceptions to most rules, and some carriers do offer policies to named insureds who don’t have a driving privilege of their own.

In most cases, you can only qualify for what’s called a standard Personal Auto Policy without a license when you’ve voluntarily given up your license because of age or a disability.

In order to get insurance, you’ll have to prove you own the vehicle and don’t drive it.

You’ll also have to prove that someone who’s responsible and licensed does use the car on a regular basis.

If you can’t do this, you’ll need to apply for a sub-standard short-term auto policy to buy the coverage that’s required on your car with no license. The only other alternative is to transfer ownership of the car to a licensed party.

If you’d like to quote the cost of insurance and you have all your information ready, use an only rate comparison tool and see how much you’ll pay for coverage.

Select the limits you want, list the vehicles, disclose the drivers in your home, and then you can get instant insurance quotes with the press of a button. Enter your zip code in our FREE tool below to start comparing auto insurance rates now!

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