Auto Insurance Still a Mystery to Many

By Jack R. Nerad

One thing that seems clear about auto insurance: drivers know they have to get it, but, despite that, they just don't "get it."  When it comes to understanding auto insurance, a high percentage of the population has difficulty grasping the subject matter.  And while you might think older drivers have a better handle on the nuances of car insurance than younger, less experienced drivers, the statistics say that's fallacious (though not salacious, unfortunately).

In an online survey of 1,000 teens and 1,000 adults, the Progressive group of companies found that adults were no more knowledgeable about how auto insurance works than were teens.  While the adults scored better in some categories, they scored worse than the teens in others.

Here are some auto insurances facts that might be worthwhile knowing:

The majority of drivers (teens and adults) don't believe information about their credit history affects their insurance rates.  Some 71 percent of teens and 63 percent of adults think that credit problems won't drive up the cost of their insurance coverage.  But what they're not reckoning on is that those with messy credit also are messy drivers. Because there is a direct, proven correlation between a driver's credit history and the likelihood he or she will be involved in a future crash, most auto insurance companies consider information about credit histories when calculating individual's rates.

Oddly, nearly a third of adults and a quarter of teens think the color of their car affects their insurance rates (30 and 22 percent, respectively).  But while insurance companies have noted a correlation between credit rating and crashes, no correlation has ever been found between the color of a car and the likelihood of the driver being involved in a future crash.  Because of that, color has no bearing on rates at all.

There also seems to be a great deal of confusion in both teens and adults on a key factor that does help determine their insurance rates -- place of residence.  Only 57 percent of teens and 71 percent of adults know that where they live affects rates.  But research has shown insurers that if you live in a more congested neighborhood (e.g. the city), chances are you are more likely to be involved in a crash and/or have your car stolen, so data about where you live is generally taken into account by auto insurers.

The final disconnect between reality and belief involves simple cost. Nearly a quarter of teens (23 percent) and 18 percent of adults think auto insurance rates are pretty much the same from company to company. But the reality is rates vary widely from company to company because each company has different costs of doing business and different experiences paying claims.  In fact, a recent study by Progressive showed rates for different companies vary an average of $586 for every six months of coverage.  What does that tell you?  To get the best rates, shop around.

Driving Today Managing Editor Jack R. Nerad writes frequently about the expenses involved in owning a car.

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