5 misconceptions about the pricing of your auto premium by insurers

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Insurance companies take a lot of details into account when determining premiums for a car, but not everyone knows exactly what are these factors. When given a list of potential factors and asked which ones are used by insurance companies when calculating auto insurance rates, 63% of Americans chose at least one wrong answer, according to a new NerdWallet survey. Here are five misconceptions Americans have about what can be factored into their premium calculations.

1. Vision and medical history

Wearing glasses has no impact on your car insurance rates, nor on the results of your last checkup. But about a third of Americans (34%) think that visual impairment – the need to wear glasses or contacts – can be factored into car insurance rates, and a quarter of Americans (25%) think so. about medical history, according to the survey. .

Something to note: While those who need glasses or contact lenses aren’t penalized by higher insurance rates, there are state vision requirements for getting a driver’s license. There may also be restrictions on obtaining a license for people with certain medical conditions, such as epileptic seizures.

2. Whether you have children

Kids can be distracting – in a vehicle and elsewhere – but having kids in the car won’t increase your premiums. Yet 28% of Americans believe whether or not a person has children can affect their auto insurance rates.

One thing that has an impact on your rates is the number of insured drivers in your home. So when your children become licensed drivers, you should expect high premiums, as younger and less experienced drivers tend to have higher rates.

3. Salary

According to the survey, nearly a quarter of Americans (24%) think salary is taken into account when determining auto insurance rates, but that is not true. Yet your work itself can impact your premiums.

Some insurers may charge drivers in certain occupations higher insurance rates because they are more likely than drivers of other occupations to file claims. Many insurers also offer discounts for certain occupations or team up with employers or professional associations, which is another way your job could affect how much you pay in premiums.

4. Race

Another thing that is not taken into account when calculating auto insurance premiums is your racial identity. However, 19% of Americans believe that racial or ethnic origin is a factor in determining auto insurance rates.

While it’s illegal to factor a person’s race into premiums, other factors typically included in auto insurance rates can disproportionately impact some races more than others. For example, location is a factor in calculating insurance rates, and studies have shown that predominantly black neighborhoods pay higher average auto insurance rates than predominantly white neighborhoods.

Another factor that can be used in calculating insurance rates is credit history, which can also have a disproportionately negative impact on black consumers. There is a significant property gap between black and white Americans – 45% versus 74%, in the second quarter of 2021, according to the US Census Bureau – and on-time rent payments are not reported to credit bureaus like mortgage payments. on time. are.

5. Credit history (in some states)

Above we said credit history may be factored into insurance rates, and this is absolutely true, but not for everyone. In five states – California, Hawaii, Massachusetts, Michigan, and Washington – insurance companies are currently not allowed to use credit history to calculate insurance premiums. So when the survey shows that 50% of Americans think credit history has an impact on these rates, whether they are right or wrong depends on where a person lives.

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Erin El Issa writes for NerdWallet. Email: [email protected]

The article 5 misconceptions about the pricing of your auto premium by insurers originally appeared on NerdWallet.


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