My article last month focused on how insurance companies determine the basic rates charged with a focus on Homeowner rates. In that article, I noted that once base rates are established, the actual rate is customized to you. That is particularly true with auto insurance; you can have a big impact on your rates.

There are common activities you can take that may cost you some money but will provide cost savings for more than one policy period. Perhaps you have a teenager in your household. Statistically almost every person will get into an accident in their first two years of driving; thus they are charged higher rates. Girls tend to experience more low speed minor fender benders while boys tend to have higher speed major impact collisions. Studies have shown that when students take the over the road driver training classes, they are involved in fewer accidents. If your teenager has received ‘over the road’ driver training, make sure your insurance company is giving you the discount you deserve. . It is usually good for two years

Students who have a 3.0 or “B” average have also been shown to have a lower frequency of accidents. If you have a “Good Student” make sure to provide your agent or insurance company with a copy of their latest grade report. If you don’t provide documentation after the fall and spring semesters, the discount likely will be removed. If they recently made “good Student” get them the credit now!

The focus of these driver education programs is to reduce collisions, driving violations, and seemingly stupid acts of an inexperienced driver.  But young drivers are not the only ones doing stupid things, getting into accidents and earning violations. The National Safety Council offers several driver training programs that providing a course completion certificate that will earn you a discount with some companies. AARP offers a driver training program for senior drivers that many companies recognize as eligible for discounts. These are simply driver awareness programs to get you to recognize some of the bad habits you’ve developed so that you can avoid an accident or violation in the future.

Accidents and violations clearly are factors that affect your rates. Every accident resulting on over $1500 in combined damage in which you are more than 50% ‘at fault’, results in an increase in your rates of at least $150 for three years. Your moving violations likewise affect your rates for 3 years but the extent of the increase is affected by the seriousness of the offense. Last fall I quoted one family with 3 cars and 5 drivers. They had no losses, no violations, and the children were good students with over the road driver training. Their annual cost was just under $2800. One week later we wrote another family with 4 drivers, 4 cars, no over the road driver training, no one eligible for good student discounts and collectively 6 violations and 3 at fault accidents. Their annual premium was just over $6,000.

The latter of those families also had some adverse credit history. Today insurance rates are adjusted based on your credit history. It has been shown that a person, or family, with adverse credit has more losses with higher severity than someone with a good credit history.  Any person working to maintain a good credit rating does not want to pay to subsidize the rates of a person with a poor rating.

Few people recognize that when one of your insurance policies goes into cancellation for non-payment you are receiving a double rating wack. In the same way that credit card companies report to the credit bureaus when you are late or fail to make a payment, so do the insurance companies. Such late or missed payments affect your credit rating. In addition, there is a federally mandated “CLUE Report” into which all insurance companies are required to report all loss payments “and other information that might be considered evidence in identifying potential insurance fraud”.  While effectively serving to reduce the prevalence of insurance fraud, the CLUE Report has also provided insurance companies with new rating factors. When a person fails to pay their premiums, it increases the insurance company’s costs. As a result, when the CLUE Report shows you having had a policy cancelled for non-payment, a rating penalty is usually added to the premium you will pay…for three years.

If you ever let an insurance policy cancel assuming ‘they’ll get the message’ when you simply do not pay the premium for the renewal policy, know that it will show on your future credit ratings and CLUE reports.  Inside an insurance policy is a clause that requires the insurance company to automatically renew your policy unless they give you notice of their intent not to renew. Likewise, it requires you to give them notice that you do not desire their policy.

Whenever I take on a new client, I and most independent insurance agents prepare a standardized cancellation form that the client signs and we send it to the former insurance carrier. Failure to properly cancel an expiring policy usually results in increased rates at the next renewal of your policy. You are then trapped because some carriers will not accept you with a recent non-payment cancellation on your record; it they do, it is at a higher rate. I find that the customer service representatives associated with 800 numbers and the internet are more commonly the ones to skip that notification step. Their commission is earned on new policies sold; not on how they addressed the long term client needs.

If you are fortunate enough to be buying or leasing a new car in the near future, consider getting loan/lease coverage. When you drive your car out of the showroom, it immediately becomes a used car with a used car book value.  If your car is ‘totaled’ while you are upside down on that loan, this coverage makes sure you get the new car value in any settlement. Most auto dealers or leasing companies will try to sell it as an add-on to your car’s purchase price.  It is expensive and you likely won’t need it after the first full year. If purchased with your auto policy, you will save and it is much easier to drop the coverage when you are no longer “underwater” on the loan.

Insurance is expensive but you can affect what you must pay.