Improve Your Risk Profile to Reduce Your Insurance Costs

 By Catherine Powell

Image courtesy Pixabay

Nobody likes to pay more for insurance.  That’s a given.  But what most policyholders don’t understand is how their premiums are determined, let alone what they can do to reduce them.  Insurance companies spend a lot of time and money determining what to charge for their products.  There are dozens of indices that are factored into the equation by underwriters.  But when you get right down to it, all insurers base their prices on one factor more than any other: Risk.  Reducing risk is what makes or breaks all insurance companies.  It’s also the number one cause of price hikes to policyholders.  While a policyholder can’t reduce the risk of a natural disaster occurring in their town, there are a number of things everybody can do to improve their risk profile to reduce the cost of insurance.

Can you drive down the cost of auto insurance?  Absolutely.   Below are the top six auto insurance factors you can exercise some control over.

1. What’s your driving history? – When it comes to determining how much you’ll pay to insure a vehicle, the first thing an insurer looks at is your driving history.  If you’ve had accidents in the past five years, insurance companies will not only learn this, but they’ll also assume you’re more likely to have another accident than someone with no accidents.  The same holds true for any moving violations that were issued to you in the last five years.  That’s the bad news.  The good news is taking a defensive driving course can help lower your auto insurance costs.

2. How’s your credit score? – Like it or not, the higher your credit score, the lower your insurance costs.  That’s because people with high credit scores are considered a lower risk to insure since their lifestyles are well within their means.  That’s also a reason why you need to make sure you never fail to pay your insurance premiums promptly.  Late pays won’t just make it costlier for you to insure your car and home, it could make it hard to find an insurer willing to underwrite your policy.  If you’re looking to reduce your insurance costs, work on raising your credit score.  

3. How many miles do you drive annually? – The farther you drive, the more you’ll pay.  That’s because insurance companies take a driver’s annual mileage into account when calculating premiums.  Conversely, some insurers will reduce premiums by as much as 50% for drivers who log fewer miles.  With that in mind, you might wish to think about carpooling or riding your bike more to help reduce your auto insurance premium. Ask your agent about insurance carriers who offer electronic monitored usage-based insurance in you drive less than most motorists.

4. Location, Location, Location – Another way to reduce what you pay in premiums is to move to a less risky town or neighborhood.   The lower the crime and crash statistics where you live, the less you’ll pay for auto insurance.  Moving to a safer neighborhood with fewer accidents is one way to reduce your insurance costs.

5. Do you own an insurance-friendly vehicle? - Do you want to reduce your premiums?  Consider trading in that expensive sports car, SUV, or truck for a more insurance-friendly sedan.  If you’re thinking about purchasing or leasing a new or used vehicle, touch base with your insurance agent to find out if your premiums are likely to go up or down.  Your agent can help you save a bundle by steering you away from vehicles that are likely to increase your premiums.  

6. When was the last time you spoke with your agent? – If it’s been a year or more since you last spoke to your agent, now is the time to place a call to find out if you qualify for any discounts.  That’s right, not only can time and circumstance cost you more when it comes time to renew your policy, you may qualify for discounts you never knew about.

Is your homeowner’s policy eating you out of house and home? -  Then you need to find out what’s causing your insurer to eat your lunch.  Just like auto policies, homeowner’s policies are based on risk.  Insurers rely on a little-known acronym called COPE to help determine what to charge policyholders for homeowner’s insurance.  Underwriters use the following four property risk factors when evaluating a property:

1. Construction – This includes such things as the material used in a structure such as masonry, veneer, mixed, etc.  It also considers the quality of construction materials used in the home, particularly if you live in a storm-prone area and things such as your home’s windows and roof are hardened against windstorms.

2. Occupancy – Is the structure going to be owner-occupied, renter-occupied, as well as how many families are going to live under one roof.

3. Protection – This factor considers everything from the distance of the property to the nearest fire department and hydrant, to the adequacy and water pressure in a given neighborhood.  It also considers whether a home is equipped with such things as a smoke and fire detection system or a sprinkler system.  This last point can be used to a homeowner’s advantage if you upgrade your home’s protection.  (Speak to your agent before you do so to make sure you install a qualified system.)

4. Exposure – When underwriters talk about exposure, what they’re referring to are the risks of loss posed by the surrounding area.  That means if your home is located in a high crime area or next to a fireworks factory, you can expect to pay more for a homeowner’s policy than someone who lives in a less exposed neighborhood.

Catherine Powell is the owner of A Plus All Florida, Insurance in Orange Park, Florida.  To find out more about saving money on all your insurance needs, check out her website at http://aplusallfloridainsuranceinc.com/