Wednesday, February 01, 2006

Car Insurance: High coverage leads to low premiums?

I am in the process of getting car insurance for myself, and I after about two weeks of getting quotes intermittently I have stumbled upon a very odd thing - the more coverage I currently have, the lower my future premiums are.

How I found this out.

I have been getting quotes from GEICO, Progressive, and a number of other companies (Allstate, 21st century, and using online engines to run searches across many companies). I am currently covered under my parent's policy, but I didn't know what my coverage currently was, so I have just assumed that I had the lowest liability coverage - $25/50/25 (basics of car insurance, numbers in thousands).

When I was assuming that, my best quote was from Drive Insurance at $706 for 6 months. This beat the roughly $820 that GEICO and Progressive were quoting me.

However, when I found out today that my parents had me covered for 100/300/100 the premium went to $593 (this is for $25/50/25 with 25/50/25 for underinsured motorists).

Finding this out, I promptly raised all of the quotes to 100/300/100 and my premium went to $691.

I was curious to find that with higher previous coverage, I get lower current rates so I looked into the quotes a little bit more. Here are the detailed premiums:

CoverageLimit (in 1,000 $s) Premium w/ 25/50/25 prior Premium w/ 100/300/100 prior


Bodily Injury and Property Damage

25 person/ 50 accident/ 25 property

Personal Injury (medical)
$35 for 10k$40 for 35k
Underinsured Motorist25 person/ 50 accident $18$15
Underinsured Motorist Property Damage 25 each accident $21$15
Comprehensive$500 deductible $72$64
Collision$500 deductible $244$182

What was most interesting is that going from 25/50/25 to the same cost MORE than going from 100/300/100.

It appears that the higher your coverage, the lower the amount of risk you present to the insurance company. The lower the risk you present, the lower your premiums.

Now I've definitely got to get my hands on some actuarial tables. This stuff is just too weird.


trip said...

That is just too weird. I have to remember that one.

personal finance advice said...

Very interesting. I'm currently running a financial challenge over at my blog and have had people actually comparing their auto insurance rates this week. When i saw this post, I immediately contacted Nate (my partner) and have him run his numbers since he is also looking to reduce his car insurance. Unfortunately, he could not confirm your findings - although some were very close, none was lower for the higher coverage. I have therefore asked the people taking the Financial Challenge to run the numbers again to see if anyone can confirm what you found - it would be great if someone else found the same thing.