A Closer Look At Auto Insurance
If you are like most people, you dread paying your hard-earned money for something that you may but hopefully will never need. It's kind of like paying a lot of money for an annual retainer fee for a lawyer.
Like a credit card bill, your insurance premium appears "automatically," you pay your premium, and then go on about your life. Besides the coverage protections itemized in your policy, have you ever thought where your money actually goes and how it is spent by your insurance company?
By understanding the insurance industry better and how your insurance company spends your premiums, you can better decide how to customize your coverage to maximize your coverage and/or save yourself money.
As we can agree that paying insurance premiums is like keeping a high-priced lawyer on standby, unless you get involved in an accident where your insurance company covers accident costs up to your policy limit, your insurance premium actually goes into a collective pool of insurance premiums. These premiums are used to cover all driver accidents by the insurance companies. Therefore theoretically, if all motorists drive more responsibly, fewer accidents will occur, insurance companies will pay out fewer claims, and every motorists' insurance premiums will decrease.
Obviously, the bulk of our insurance premiums is used by insurance companies to cover accident claims, but a significant percentage, roughly 50%, is utilized to run the insurance companies and cover administrative and legal expenses.
Of course since insurance companies vary on how efficiently they are run, save, and invest, so too are the premiums they offer. So it pays to shop around.
How Is Your Insurance Premium Spent?
Despite sky-rocketing medical and healthcare costs and a litigious society, (perhaps why motorists carry more liability coverage than any other type of auto insurance), collision and comprehensive costs comprise the bulk of the insurance companies' claims.
Ironically, since insurance companies typically pay out the "fair market value" (Blue Book) of a vehicle, this amount is a significantly smaller dollar amount than medical expenses. Furthermore, despite the fact that collision and comprehensive premiums are so high, yet pay out so little, liability insurance proportionately covers for more for roughly the same amount of money. In other words, your liability premium is a more cost-effective policy than a collision and comprehensive policy.
Administrative and Legal Expenses
In any big industry structured to accommodate the masses, a significant portion of an insurance company's time, money, and resources are devoted to the administrative and legal costs of settling claims and litigation. Estimates average that around twenty-five percent of the insurance companies' costs go into covering administrative and legal expenditures.
Since states' legal and administrative costs and settlements vary, so to do the average premiums within that state. Generally, the higher such costs are in a particular state, the higher the premium.
Insurance fraud is an increasing problem for insurance companies, and therefore, for all driver's. In order to cover the costs of fraudulent claims and inflated medical expenses, and to investigate and prosecute select cases, insurance companies are compelled to increase premiums. The "No Fault" insurance system was conceived in part to keep insurance premiums down by greatly eliminating law suits. This was because the motorists' injury costs were immediately covered by their insurance company, regardless who was "at fault." Unfortunately, due to inflated medical costs and false claims by deceitful policy holders, and the thinking, "the system will absorb my inflated claims," drivers in "No Fault" states have experienced high Personal Injury Protection policy premiums.
Can You Control Some Premium Expenses?
Besides, being a safe driver and reporting your accident claims responsibly, you can do little else to affect that collective pool of premiums within your state. However, you can lower your annual premium by choosing to pay a higher deductible on your collision and comprehensive policies. By opting to pay a higher deductible out of pocket, you help spare the insurance company the administrative expense of settling small claims, which saves them money. Therefore, they offer a significant reduction in your annual premium.
The key is deciding on the largest collision and comprehensive deductible that you can comfortably afford. The money you save can be better utilized, or perhaps rolled back into increasing your liability policy should you so desire.
Reducing Premiums by Shopping On-Line
As the saying goes, if you want something done right, do it yourself. As more motorists shop and compare insurance quotes on-line, insurance companies will save money on traditional advertising, sales, and marketing, and can rely less on agents and brokers.
This eventually translates to lower premiums for motorists. At Auto Insurance Group, we can help you obtain a quote and compare policies in a fast, secure, and hassle-free manner.
By taking advantage of such on-line services, you can start to directly control your premium, which means saving your hard-earned money. If you have read thus far chances are that you are serious about taking the next step toward controlling your insurance posture. Since no one will watch your money closer than you will, so holds the logic that no one will save you money like you will for yourself.