Why Do Insurance Rates Go Up?

People often find themselves seeking the answer to this question. Why has my insurance rate increased when I have a clean driving record? Or, why has my rate increased while my car is getting older? Nobody likes the idea of paying more money for what seems like no apparent reason.

There are several factors that could be responsible for your insurance rates increasing. Some of them are things you can control, while others are not. Here are a few reasons that could shed some light on why your insurance rate has gone up.

Supply and demand: Think of the company like a bank. Banks have to have a set amount of money in reserve. It is the same with an insurance company. There has to be enough money in order to pay unexpected claims that may arise. If money is taken out, it has to be replaced. Sometimes a higher amount of reserves is necessary if the company has taken on additional risk. In order to increase the money in the reserve, rates may increase.

Number of claims being filed: The higher number of claims filed by policyholders will create a need for the company to pay more money to cover any additional risk. An example of an external increase in risk that could potentially bring in more claims is a construction or work zone. Construction or improvement of the roads will be beneficial in the future by reducing car accidents long term, but in short term could increase traffic accidents or violations while people adjust to the slower speed, sight of equipment or change in the road path.

Driving record: This is probably the most widespread reason for increasing rates. The more accidents and violations that are on record, the bigger impact it will have on the premium cost. For example if you have a less than great driving record, you will be considered a high-risk driver. Being a high-risk driver makes you more likely to file a claim, resulting in higher rates. On the other hand, if you have a relatively clean driving record and you get a speeding ticket, for example, your rate will still increase, but probably not to the same degree that it would if you have a bad driving record.

Cost of parts and labor: A common question is “Since my car is getting older, shouldn’t the insurance be going down?” Most people believe that new cars always cost more to insure than old cars, but that is a myth. Just because the car is getting older, doesn’t mean the cost of parts will be less money. The older the car gets, and the more the model line ages, it becomes harder to find specific parts and sometimes to even do a repair at all. With older parts becoming harder to find, repair costs are increased, therefore the cost to insure is increased.

Sooner or later, regardless if you have a perfect driving record or a far from perfect one, at some point in your life you will be impacted by a rate increase. Knowing why can help you better prepare and possibly avoid increases.

At The Resource Center, we do everything we can to find you the best coverage at the best price. By selling for multiple companies we can shop around for the best plan at the most competitive price.  We strive for ‘simple solutions in a complex world.’

Written By Kristin Dyer.

We are not permitted to offer, and no statement contained herein shall constitute, tax or legal advice. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. We are able to provide you with information but not guidance or advice related to federal benefits. Our firm is not affiliated with the U.S. government or any governmental agency.  Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and The Resource Center, Inc. are not affiliated companies.

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