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Knowledge is Power Shopping for Insurance

ik-2When you shop for financial products like insurance, it seems like the company has all of the power.  You may feel like there is secret information they have and you don’t.  As a result, you feel at a disadvantage. However, knowledge is power when shopping for insurance.

It’s true that insurance companies have vast quantities of information.  Insurers gather and analyze massive amounts of data about demographics, driving habits, accidents and other losses.  They use that data to decide how much consumers should pay for policies that reduce their risk of loss.

An important type of information they use is geography.  If you live in an area with high accidents rates, you will pay higher rates, even though your personal driving record is impeccable.  In general, living in an urban area with high population density, high traffic volume and high crime rates makes you more likely to have a claim than someone in a less populated area with a lower crime rate.

It’s probably no surprise that your age and gender have a big effect on what your car insurance will cost.  That’s because young drivers, particularly young men, have a higher number of accidents and their accidents cost more.

Don’t Overpay for Insurance. Start Saving Now. As a driver becomes more experienced, insurance rates will reflect this lessening of the risk they represent.  By age 26, young drivers with no personal record of accidents will see their rate decrease substantially.

This rate decrease won’t last forever, however.  Drivers move back into a higher risk category as they age.  This is because of slower reaction time and other factors related to aging, drivers over 65 will once again pay more for insurance because of age.

The type of car you drive will also affect how much you pay.  A car that is more appealing to thieves or one that performs poorly on crash tests will be more expensive to insure.   Also, cars that increase the likelihood of engaging in risky behavior such as speeding will increase rates.

In addition to demographic information (age, gender, and zip code) and the car you drive, insurance companies also use credit rating information to determine how much you will pay for auto insurance.  Before applying for car insurance, it’s a good idea to check your credit report.  If you have actually missed payments or have other blemishes on your record, you will pay more for your insurance.  However, when you check your credit report, you might find that there is an error that needs to be corrected.

Using a credit report for determining auto insurance rates has been somewhat controversial.  However, there is statistical evidence that people who have a bad record handling their personal finances will be more prone to experience losses that will result in claims.

All insurance companies use data to set their rates.  But that doesn’t mean that all companies come to the same conclusion about pricing.