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Testing the Top Five Car Insurance Myths

Posted By Jim On 10/01/2008 @ 10:12 am In Insurance | 4 Comments

When I first started driving, I was amazed at how much car insurance cost. I, like many other newly-minted drivers clutching our licenses, was put on my parents’ car insurance policy, which I’m sure made my parents nervous, and didn’t really feel the full brunt of new-driver-car-insurance-rates. However, when I finally left the nest and had to insure myself, I finally started hoping that 25 would come sooner because everyone says that car insurance rates drop significantly after you turn 25. (I spent all my <21 years waiting to be 21, then my <25 years waiting to be 25... now I'm waiting for retirement... the waiting never ends!)

A few years ago, when I turned twenty-five, I had a great opportunity to test a few car insurance myths empirically and I’m happy to report the 25 year old rate drop myth is in fact very true.

Myth #1: Rates Drop Significantly After 25

This myth is true.

I requested car insurance quotes before I turned 25 [3] and after I turned 25 [4]. The results were a little mixed but Geico, my current car insurance company, dropped my rate by about 15% after I turned 25. However, in each year after my 25th birthday, my insurance rates have been going down by a significant amount as well. While there were other factors involved (perhaps Maryland drivers became cheaper to insure, I hadn’t gotten into any accidents, etc), I believe each year after 25 is marked with lower premiums as long as you stay out of trouble. It just so happens that 25 is the first of the big drops, which explains its top billing.

Myth #2: Married Couples Pay Less Insurance

This myth is true, but probably not for the reason you expected.

The logic behind this myth is that once the male in the married couple gets married, he’s a safer driver and thus cheaper to insure. However, when I got married earlier this year (and told Geico), our rates dropped more [5] so because there was a safer driver listed on my account. When I added my wife as a driver, the average riskiness of the driver went down and thus the premiums went down. In fact, I couldn’t even indicate marital status in my profile… they didn’t care. (there is also a component of the multi-car discount mixed in but I added her as a driver before I added her car)

Myth #3: Females Pay Lower Pemiums

This myth is true.

All other characteristics being equal, a female paid 18.8% less than a male in my car insurance quote study [6]. The logic, on the part of insurance companies, behind this is that women are safer drivers and that men are reckless. Is that true? Who knows, but male drivers pay their premiums as if it were true!

(Odd factoid: Going to college lowers your premiums by about 7%, though it’s something that I doubt any company will verify, but don’t go too far… a Ph.D or an M.S. won’t give you more of a discount over B.S.)

Myth #4: Comprehensive Claims Don’t Affect Premiums

This myth is partially false.

Finally, a somewhat false myth! Conventional wisdom states that if you file a comprehensive claim, your insurer won’t increase your premiums. That part of the myth is true. The part that’s false is that if you ever leave that insurer, the new insurance company will charge you higher premiums for coverage. Is that fair? Probably not, but that’s how it works. In my car insurance quote study [6] (near the end), I found that a vandalism claim increased rates by 8% and a vehicle theft or loss of belongings totaling more than $10k was a nearly 14% increase.

Myth #5: Your Credit Score Affects Your Premiums

This myth is true.

You might be wondering, why the heck does my credit score affect my car insurance premiums [7]? The answer is more subtle than you might think. The reality is that not every claimable event is claimed (how many times have you been in an accident and someone pleaded to keep the insurance company out of it?) and insurance companies realize this. So they not only want safe drivers but also those who aren’t going to submit claims – a higher credit score usually indicates more sound financial footing, thus more money to pay for expenses out of pocket. Sneaky huh!?

Here are all the referenced articles:

(Photo: afagen [9])


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[1] Tweet: http://twitter.com/share

[2] Email: mailto:?subject=http://www.bargaineering.com/articles/testing-the-top-five-car-insurance-myths.html

[3] before I turned 25: http://www.bargaineering.com/articles/car-insurance-milestone-at-age-25.html

[4] after I turned 25: http://www.bargaineering.com/articles/auto-insurance-the-25-milestone.html

[5] our rates dropped more: http://www.bargaineering.com/articles/does-marriage-affect-car-insurance-premiums.html

[6] my car insurance quote study: http://www.bargaineering.com/articles/effects-of-changing-personal-insurance-details-on-premiums.html

[7] my credit score affect my car insurance premiums: http://www.bargaineering.com/articles/car-insurance-premiums-credit-scores.html

[8] Effects of Changing Coverages on Premiums: http://www.bargaineering.com/articles/effects-of-changing-coverages-on-premiums.html

[9] afagen: http://www.flickr.com/photos/afagen/2815592135/sizes/o/

Thank you for reading!