Because of the choices we make.
Woah- you’re thinking, “How can I possibly be responsible for how much I pay for insurance?”
I submit to you that our lifestyle choices play a HUGE role in determining premiums. So, in answer to my question “Why Is Insurance So Expensive?”, I’ve compiled a list of reasons below. How many are due to a lifestyle choice?
- Got a lead foot or just can’t seem to quit hitting stuff? Genuine accidents happen, but if you’re actively contributing, then the burden is on you. Insurance companies don’t make you drive fast or recklessly- they just react to you by raising the premiums.
- Live in the big city? The larger your population and the more dense your population, the higher the premiums. There are simply more people who run into each other and with higher frequency. And even between big cities, this holds true- the premium for Los Angeles, California is way more than my capital city of Columbus, Ohio.
- Got lousy credit? If your credit history is sketchy, this will raise your insurance premium. Credit does play a part in determining premium for a majority of companies. Fact is, the better it is, the better your premium. You can read the specifics in an earlier post– “So What Does Credit Have to Do With My Insurance?”
- Have a bunch of expensive vehicles? The more expensive your vehicle, the more it costs to insure. So, if you are a sports car fanatic and have a garageful of Corvettes, Lamborghinis & Ferraris, you bet your bottom you’ll pay more than someone who has a minivan and a pickup truck.
- Live in the country? Proximity to fire hydrants, as well as distance from and composition of the fire department are huge factors in determining premium. If you’re 10 miles from the nearest fire department and your friend’s house is 1 mile, you can bet that your house has a much greater likelihood of being reduced to a pile of rubble and the policy maximum paid. Your friend? Fire department will get there quicker, and I bet the claim isn’t early as much.
- Have a party house? If everyone in the neighborhood wants to come to your house because you have lots of “fun” stuff, there’s a good chance your “fun” will result in a higher premium. Trampolines and pools are the big offenders. If an insurance company chooses to insure a house, they may tack on extra premium due to these additional hazards.
- Home construction- it’s a fact, brick homes cost less to insure than a frame home. Less prone to wind and fire damage = less premium.
- Age of home- it costs less to rebuild a home built with modern materials, than one that was built in 1900. Modern materials you can get now- Victorian-era, not so much.
Health Insurance (until 2014)
- Have a combination of medical conditions and/or take several prescriptions? The health insurance companies I work with have different rating “tiers.” The farther away from the best tier, the more it costs. Think of Tier 1 as a clean bill of health- a few things here and there, but overall, nothing major. Tier 5- multiple conditions/medications.
- Your school girl figure stayed in school? Health insurance companies have a height and weight chart- the range will determine which rating tier you get.
- Smoke? Generally, smokers won’t get the best rate offered. Whether you want to hear it or not, smoking usually leads to a lot of serious health conditions. Insurance companies know this.
- You’re on a bells & whistles plan- low deductible, copays out the wazoo, lots of fringe benefits. The more you move away from bells & whistles to a catastrophe plan, the less your premium.
- Health history not the best? Similar to health insurance, if you’ve got some medical conditions, take several medications, lost your schoolgirl figure, etc. it’ll cost ya. Life insurance companies have “tables” at their disposal to surcharge the premium. For example, let’s say the base premium is $1.00 per $1,000 of coverage. Table 1 is $1.10 per $1,000 of coverage. Table 2 is $1.20 per $1,000 of coverage. And so on and so forth.
- Parents have medical conditions or died early? Most life insurance applications ask for, at minimum, your parents’ information. They want to know how great your risk for major conditions like cancer, heart attack, stroke, Alzheimer’s, etc. And if either died young, well that’s another big factor. Genetics are not our friend in this instance…