How your Car Insurance Premium Is Determined

In 1967, while working in a small statewide insurance company the scene was two phone operators working a board where they took incoming calls and plugged into the board the call to re-route to each phone. In the afternoon when calls were less constant, one of the operators would set at a table and scan local newspapers looking for accidents and tickets then recording them on a 3×5 cards for reference if someone called in to purchase very cheap car insurance with no deposit.

The underwriter than would compare that information with what the local agent had submitted under a signed application in which the prospect had admitted to. Contrast that with today when an underwriter has access with only the push of a button to the full history of prior accidents, tickets and credit scores of someone seeking an offer for insurance and can easily recognize if the prospect has been totally honest in their driving history.

As a result of technology, underwriting a new risk has changed the approach from specifically how you drove in the past to how they think you will drive in the future. A recent addition many companies are beginning to use now is installing a gadget under your dash to track important things like how often you brake really hard, how often you exceed the speed limit and even how often you drive around in the early morning without cause and since the advent of the gadget it has even moved to eliminating the gadget with new technology using a simple software program and tracking from your smart phone. The purpose of the tracking is to alert you to unsafe habits and to award you with more discounts if you have above average driving habits.

What Is the 10% Rule Factor in Buying Car Insurance?

In risk planning the task is to consider just how much risk are you willing to take. Insurance is not designed to cover every incident and it is expected that you will accept some form of risk. As an example, in the early years homeowners’ policies where often written with no deductible but soon went to a $50 deductible and later when the insurance companies found that they were being overrun with every wind storm causing the storm doors to be replaced minimum deductibles were raised again. You can see where this is going so that even today roof damage is the cause of deductibles to raise to $1000 deductible.

You might say to yourself those greedy Insurance companies don’t want to pay claims. But consider this, there is a balance between what can be insured and what can be afforded by the general public. Technically, Insurance companies should actuarily operate with about a 3% profit to be solvent and make a profit. This does not include the profit made on investment and in a down market some companies may operate as high as a 5% loss or a little higher before getting into trouble. That said, you are going to accept some form of risk and that brings us to the 10% rule.


When you have a loan on your car, the bank or loan company is going to require that you carry coverage from damage to the car. That is their collateral for the loan. So, with the 10% rule you would look at the coverage you give up between deductibles for example going from a $100 deductible to a $500 deductible you are taking on a new risk of $400 if that equals a savings of at least $40 per year (or 10%) it is to your advantage and a risk you should take if it does not cause extreme hardship to you or your family. Another factor in the rule is that the comprehensive part is usually a lot cheaper than collision and you may consider lower deductibles on the comprehensive and higher on the collision.

Keep in mind that if you strike an animal or bird it is not considered collision, but rather is paid under the comprehensive. In addition to that there is an equal chance that collision could be the other party’s fault. As your car gets older and less in value and is paid off the 10% works as well. Example the value of car is now $2500 and you are paying more than $250 a year for comprehensive and collision, you should consider dropping the coverage altogether. Again, this hold true if you are able to replace the car yourself. This rule applies to all forms of insurance and it is more effective the more different coverages you have.

Is It a Good Idea to Present Your Own Insurance When Renting a Car?

First let’s consider how damage repairs may be available in the event that your rental car is Involved in an accident.

  1. Buying the collision waiver damage from the rental company
  2. Your own auto insurance policy
  3. Your credit card
  4. Your travel agency

Depending on your credit card or travel agency is really a risky choice and filled with extra exclusions & conditions. This truly is the choice of last resort and if successful will likely result in a subrogation charge against your own auto policy. This means the insurance company is looking for reimbursement. Now you are left with two more choices – do you buy their waiver (which is not really an insurance policy) or present your own auto policy.

Cost and Control and an Advocate

Of the two, presenting your own auto policy is usually the best choice because of three reasons, cost and control and an advocate that will go to bat for you and advise you. However, there is one caveat, loss of use. Your policy does not cover loss of use of the vehicle for the rental company. There is good news several court cases ruled in favor of the renter not the dealers on one principal – that is if the dealer has other unused vehicles available; they cannot suffer loss of use damage. There is a second issue to be aware of also, and that is your coverage is replacing one of your cars. So, what does that mean? Simply you cannot let someone else use the car at home that you are replacing with the rental.

Post Comment