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Health & Fitness

Insurance Rates Myth #1: My car is getting older, so my rates should be cheaper

Discussing a common myth of car insurance premiums!

I know that logically the title of this post makes sense….especially if you are not in the Risk Management industry. Mainly because you, we, consumers do a very simple insurance rate calculation: Good Driving + Older (depreciating) Vehicle = Lower Rates!

The problem with this math equation is that only consumers use this to calculate their insurance premiums. Insurance carriers do not–and they are the ones making the rules.  Here is a sample of what their "proprietary" equation "could" look like:

Increasing medical/health care costs + Increasing litigation + Increasing claims frequencies because people are broke in a down economy and claim things that they used to pay out of their pocket + Lower returns on our investments + Less good bill paying because people are broke in a down economy + Jobless people lower their coverage to afford lower premium (which is less in revenue) = An insurance company that is not bringing in enough premiums and investment returns to cover their impending claims. To stay solvent, they have to either A) Increase their incoming cash (raise rates) or B) lower their outstanding potential claims (drop coverage).

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So, yes, in theory, especially in the consumer’s insurance rate calculation formula, your insurance rates "should be’" going down. But the fact is that there are many, many factors outside of you and your car that are driving insurance premiums–the largest, in my opinion, being the increasing costs of health care and medical costs.  Think about the average cost (in 2012) to surgically repair a shattered femur, along with traction and rehab, versus 2000.  Probably double or triple right?  Because health care costs have skyrocketed over the last decade.  Well, insurance companies are paying those bills in bodily injury claims…so what used to cost $50,000 now costs $135,000.  Guess who has to pay that new, higher amount?  We all do–via our car insurance premiums!

So, next time your rates go up, remember that there may be other factors involved beyond you and your aging vehicle.

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