5 Misconceptions About How Insurers Price Your Auto Premium
Insurance companies consider many details when determining car premiums, but not everyone knows exactly what these factors are. When given a list of potential factors and asked which are used by insurance companies when calculating auto insurance rates, 63% of Americans chose at least one wrong answer, according to a new NerdWallet survey. Here are five misconceptions Americans have about what can be considered in their premium calculations.
1. Vision and medical history
Being a glasses wearer doesn’t impact your auto insurance rates, nor do the results of your most recent health checkup. But around a third of Americans (34%) believe that eyesight impairment — the need to wear glasses or contacts — can be factored into auto insurance rates, and a quarter of Americans (25%) think this about medical history, according to the survey.
Something to note: While those who need glasses or contacts won’t be penalized with higher insurance rates, there are state vision requirements in order to get a driver’s license. There may also be restrictions on getting a license for those with certain medical conditions, like epileptic seizures.
2. Whether you have kids
Children may be distracting — in a vehicle and elsewhere — but having kids in the car won’t raise your premiums. Still, 28% of Americans believe whether or not a person has children can impact their auto insurance rates.
One thing that does impact your rates is the number of insured drivers in your house. So when your kids become licensed drivers, you should expect steep premiums because younger, less-experienced drivers tend to have higher rates.
According to the survey, close to a quarter of Americans (24%) think salary is considered when determining auto insurance rates, but this isn’t true. Still, your job itself may impact your premiums.
Some insurers may charge drivers with certain occupations higher insurance rates because they’re more likely than drivers in other professions to file claims. Many insurers also offer discounts for certain occupations, or team up with employers or professional associations, which is another way your job could impact the amount you pay in premiums.
Another thing that isn’t taken into account when calculating auto insurance premiums is your racial identity. However, 19% of Americans think racial or ethnic background is a factor in determining auto insurance rates.
While it’s illegal to factor a person’s race into premiums, other factors typically included in auto insurance rates can disproportionately impact some races more than others. For example, location is a factor in calculating insurance rates, and studies have shown that predominantly Black neighborhoods pay higher average auto insurance rates than predominantly white neighborhoods.
Another factor that may be used in calculating insurance rates is credit history, and this can also negatively impact Black consumers disproportionately. There’s a significant homeownership gap between Black and white Americans — 45% compared to 74%, as of Q2 2021, according to the U.S. Census Bureau — and on-time rent payments aren’t reported to the credit bureaus like on-time mortgage payments are.
5. Credit history (in some states)
Above, we said credit history can be factored into insurance rates, and this is absolutely true, but not for everyone. In five states — California, Hawaii, Massachusetts, Michigan and Washington — insurance companies aren’t currently allowed to use credit history when calculating insurance premiums. So when the survey shows that 50% of Americans think that credit history impacts these rates, whether they’re right or wrong depends on where a person lives.
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