A lot of people have a hard time wrapping their heads around why their auto insurance premiums keep increasing, especially when their car is growing older. We would like to touch a bit on this subject to explain all the different variables that go into your auto insurance policy.
First of all, car insurance doesn’t just cover your car. Technically, it is “auto-owners insurance”, very similar to home insurance and what we call “home-owners insurance”. The insurance premium that you pay every year protects you, as the driver, or someone you have crashed into from bodily harm.
The insurance company is not concerned with your car because it is a material possession that can be easily replaced. They are more concerned with a human life being in a fatal accident that can’t afford medical payments, property damage, loss of income, or even funeral expenses.
It is important to understand that you are not the only one covered under the insurance policy you have purchased. Everyone who has an insurance policy has a different risk profile. A younger less, experienced driver has larger risk than an older driver with 10 years of experience.
Insurance spreads people’s risk over a large number, which is called a risk pool. The risk pool is constantly changing because older drivers are retiring and new drivers are buying insurance. The overall economic climate can also affect the risk pool. Risk can increase when there is a loss of demand, an increase in regulations, or less claims being reported.
Essentially, this means that you are sharing in the costs of millions of other people who are also driving a car. Insurance means sharing the costs.
So, the next time you come in to renew your auto insurance, take a look at the big picture. It is crucial to understand all the different variables that go into creating your premiums. Not just the fact that your car has grown a year older.
We hope this makes sense to you! If you still have some questions, lots of our auto brokers are willing to explain. Visit out Car Insurance page today!