Car Insurance Myths Busted

NEW YORK (MainStreet) — Some 43% of Americans mistakenly believe their income affects how much they pay for car insurance, according to a new insuranceQuotes.com report.

Consumers also incorrectly believe that their employment status affects their car insurance rate with only 36% of Americans who know that it doesn't.

Also See: How to Slash Your Car Insurance Bill

Car insurance providers consider factors that affect a consumer's risk level such as their age, gender, credit history, marital status, education level and other information.

"Drivers can control most of these factors," said Laura Adams, senior analyst at insuranceQuotes.com. "In addition to maintaining a good driving record and credit history, drivers should consider all available discounts, including pay-as-you-drive programs. They should compare rates from at least three carriers annually."

Also See: 5 Ways to Cut Your Car Insurance Bill

More eight in ten people know that car insurance companies consider criteria such as the make and model of the vehicle with 84% who provided the accurate response, the age of the car or 86% are aware of this and the age of driver or 88% who know this.

Only half of consumers are aware that your gender, marital status, credit history, where you live and if you own a home are also factors that insurance companies consider when setting their rates. The survey found that 54% are aware that your gender is one piece of the equation. On average, a 20-year-old man pays about 25% more than a 20-year-old woman, but only one in four Americans know this. Half of Americans say it's fair that insurance companies typically charge young men the highest car insurance rates, while 43% think it is discrimination.

Whether you live in the city or suburbs is another factor with only 63% who recognize this. Some 58% of Americans are mindful their marital status impacts car insurance rates, and 53% know that owning a home is another consideration.

Only 66% are conscious that credit history plays an important factor in your insurance premium.

Even your education level plays a role, but only 43% of Americans are aware of this fact. Insurance companies have data that demonstrates that consumers with less education levels tend to file more claims or more expensive ones, Adams said.

Since all carriers consider different factors and do not weigh all criteria equally, it is important to compare rates from several companies, she said. Each state also regulates insurance premiums differently.

"Raising the awareness level for consumers is important, because they have no idea how complex it is," she said. "There is a lot that goes into it."

Consumers can reduce their rates by choosing to buy or lease vehicles that have additional safety features or cars that are not as popular with thieves, Adams said.

"Many consumers don't think about the cost of insurance when they are choosing a car," she said. "It can be substantially different."

Americans need to understand that insurers use criteria that assess risk, not their income, said Loretta Worters, vice president of the Insurance Information Institute in New York.

"Your premium is based on how likely you are to get in an accident and how much that accident will cost," she said.

The average yearly auto insurance premium is almost $800, but there is wide variation around these average, said Worters. For many insurers, "credit-based insurance scoring is one of the most important and statistically valid tools to predict the likelihood of a person filing a claim and the likely cost of that claim," she said.

"Credit-based insurance scores are based on information like payment history, bankruptcies, collections, outstanding debt and length of credit history," Worters said. "For example, regular on time credit card and mortgage payments affect a score positively, while late payments affect a score negatively."

One of the largest discounts is using one insurance company for both your car and home.

"In some cases, if you bundle your insurance, you can obtain a credit on your auto insurance policy," said Jim Fiske, vice president at Chubb Insurance in Warren, N.J. "Additional auto policy discounts include being recognized as a good student and completing driver training. Daytime running lights can also contribute to policy discounts."

--Written by Ellen Chang for MainStreet

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