Friday, March 22, 2013

Age Factor Affects The Cost Of Insurance

Age factor is play important roll for the cost of insurance. Throughout my many years working for a major insurance company in Florida, one of the questions I hear the most from customers is "Why does (fill in the blank) pay less than I do?". Many times the individual will have a followup argument that compares only one factor that is similar. For example, the two people have the same car, or they both have the same insurance company. The answer to this question is not simple. Many factors go into determining your insurance rate with a company and no two companies use that information exactly the same. Understanding what is used to determine your insurance rates is the first step in reducing your premiums over the long run. Over a series of articles, I will explain the factors most insurance companies take into account when determining your rate and how you can use that to lower you insurance rate.

Besides your name, one of the first questions you will be asked when you are looking for insurance is your date of birth. This is because age is one of the most influential elements of your insurance premium. Unfortunately, your age cannot be changed any faster than time will allow but knowing is half the battle. The relationship between age and insurance premium can be visualized with the graph linked below.

In our case the x-axis or horizontal axis is time or "age." While the y-axis or vertical axis is your insurance premium. Basically, when you're young your insurance premium is going to be high and as you get older the rates will start to decline. The decline is not necessarily a yearly decrease, generally there are thresholds like turning 21 years old. Then another age related reduction might not be seen until the next threshold of 25. At some point, usually around your 70's-80's many companies will start to rate negatively again for age. In addition to the expectation of higher rates at these ends of the age spectrum you can also expect negative underwriting guidelines as well. That means that when you are 16 years old and first starting to drive you may not be eligible to purchase policies with many companies on your own, and might have to be added to a guardians policy as a driver. This also applies to older individuals as well.

Many insurers have guidelines that prohibit writing policies beyond a certain age. If you want to reduce your insurance rates first you need to understand what determines them. Then, change what you can, and accept what is fixed.

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