Thinking about switching insurance companies? You’re not alone. Many people check out alternative insurance providers to improve coverage, find a better rate, or just get more personal customer service.
When thinking about switching insurance companies, one of the most common questions people have is: Does changing my insurance company affect my premiums? Keep reading to find out.
Understanding insurance premiums
Before we get into how switching insurance companies might change your premiums, let’s take a quick look at what an insurance premium actually is.
An insurance premium is the regular payment you make to your insurance company to keep your coverage active. Depending on the insurer, you may have options to make this payment monthly, quarterly, or annually – sometimes, deep discounts are available if you pay for the full year of coverage upfront.
Paying your premium keeps your insurance policy in good standing, so you can rely on it when unexpected events occur. Think of it as your investment having financial protection whenever you need it — and then hope you don’t need it.
How premiums are calculated
While premiums are a set cost, they can be affected by different factors like changes in your coverage, the type of policy you choose, and your history in making claims against your insurance. Knowing this can help you understand how switching insurance companies might impact your costs.
Let’s look at how insurance premiums are determined by some key factors:
Your Risk Profile: Insurance companies use your risk profile to determine how much you should pay for coverage, with the idea that higher risk leads to higher premiums. This profile reflects various factors that indicate your likelihood of making a claim, including:
- Age: Generally, older individuals might face higher premiums for health and life insurance due to increased health risks. Younger drivers may pay more for auto insurance because data shows they’re statistically more likely to be involved in accidents.
- Gender: In some U.S. states, like California, Hawaii, and Massachusetts, gender-based car insurance pricing is banned due to discrimination concerns. Historically, male drivers have more accidents and claims, with studies showing they often drive more aggressively and take more risks. Despite being statistically safer, women still face the stereotype of being bad drivers and may receive higher insurance quotes.
- Health History: For health insurance, your medical history is key. Chronic conditions, past illnesses, and overall health can impact your premiums. Insurers use (and share) this information to predict future healthcare needs and adjust rates accordingly.
- Driving Record: For auto insurance, your driving history plays a huge role. A clean record with no accidents or traffic violations can help lower your premiums. However, a history of accidents or tickets can lead to higher rates.
- Credit Score: Some insurers consider your credit score as part of the risk assessment process, especially for auto and home insurance. A higher credit score might result in lower premiums, as it often indicates lower risk and better financial stability.
- Occupation and Lifestyle: Your job and daily activities also affect your risk profile. High-risk jobs or hobbies (like extreme sports) can lead to higher premiums due to the increased likelihood of accidents or injuries.
- Claims History: If you’ve made frequent claims in the past, insurers might view you as a higher risk, which can increase your premiums. On the other hand, a history of few or no claims might help lower your rates.
Coverage Levels: The amount of coverage you select directly impacts your premiums. If you choose a policy with extensive coverage—such as higher limits on liability, additional protection options, or more inclusive benefits—your premiums will typically be higher. Additionally, adding extras, like roadside assistance, to your auto insurance or additional wellness benefits to your health insurance can increase your premium.
Deductibles and Co-pays: A deductible is the amount you pay out-of-pocket before your insurance starts to cover costs, while co-pays are the fixed amounts you pay for specific services or prescriptions. Higher deductibles and co-pays usually lead to lower premiums and vice versa. If you expect to use your insurance frequently, a lower deductible or co-pays might be more cost-effective despite the higher premium. On the other hand, if you don’t anticipate frequent claims, a higher deductible and lower premium could save you money over time.
Location: Your location plays a big role in your premiums. For instance, auto insurance rates can vary by zip code, reflecting local traffic patterns, accident rates, and congestion. Areas with higher traffic and more congestion might have higher premiums due to the increased risk of accidents.
Vehicle Type: The type of vehicle you drive plays a big role in your insurance premium. Expensive cars cost more to repair or replace, while vehicles with advanced safety features may lower your premium. Cars that are costly to repair, frequently stolen, or high-performance tend to have higher premiums due to the increased risk they pose to insurers. Here’s a recent look at the cars that typically see lower premiums.
How switching insurance companies can affect your premiums.
Now that we’ve covered how insurance premiums are set, let’s see how changing insurance companies might affect them.
Potential for Lower Premiums: Many people switch insurance companies for a better rate. Since different insurers have various ways of setting premiums, shopping around might help you find a company offering lower rates for similar or even better coverage. This can be due to their unique pricing models or available discounts. Here’s more on lowering car insurance premiums and lowering home insurance premiums.
Impact of Your Personal Information: When you switch insurers, you’ll need to provide updated personal details. Your new insurer will use this information to assess your risk profile and calculate your new premium. If your risk profile has improved—like having a cleaner driving record or a healthier lifestyle—you might see a drop in your premiums.
Changes in Coverage: Switching gives you a chance to reassess your coverage needs. Adjusting your coverage levels can influence your premiums. For instance, moving to a policy with lower coverage limits or higher deductibles might reduce your premiums. Conversely, opting for more coverage or lower deductibles could lead to higher premiums.
Discounts and Offers: Many insurers offer various discounts that can help lower your premiums. These might include discounts for bundling multiple policies (like home and auto), being a safe driver, or having certain safety features in your vehicle. You might find a new provider with discounts that better suit your needs, potentially reducing your premiums.
Frequency of Premium Adjustments: Insurance companies adjust their rates based on market conditions, claims data, and other factors. When you switch providers, you’re starting a new contract that reflects the current market trends and the insurer’s pricing strategy. This means your premiums could be more competitive or better aligned with your current risk profile.
Keep these 3 things in mind when switching insurance providers.
- Compare Apples to Apples: Make sure you compare similar coverage levels when evaluating different insurers. A lower premium might come with reduced coverage or higher out-of-pocket costs.
- Check for Fees: Some insurance companies may charge fees for early cancellation or policy changes. Be sure to review the terms and conditions of both your current and prospective policies. Read more on what happens when you cancel an insurance policy.
- Consider the Overall Value: Sometimes, the cheapest policy isn’t always the best value. Consider the quality of customer service, the reputation of the insurer, and the comprehensiveness of the coverage when making your decision.
Ready to make the switch?
Switching your insurance company can definitely impact your premiums and might help you find better savings or coverage that fits your needs. By understanding how premiums work and what factors affect them, you can make a smart choice and potentially get a better deal.
If you’re thinking about making a switch, we’re here to help! If you’re in the market for new insurance, the team at Guided Solutions is here to help! We’ll compare policies from various providers, ask the important questions, and dig into the details to find a policy that fits both your needs and your budget.
Reach out to us today for your free insurance review, and let us help you find the best coverage.
