Why Insurance Premiums Increase

Jimmy Cooper, Marketing Coordinator

Introduction

Price increases in products and services are a typical trend we experience yearly. Many factors play into the increases, sometimes unpredictable, in recent years labor shortages due to the global pandemic. There isn’t an area of our lives that will not see price increases; after all, in 1955, the price of a hamburger from McDonald’s was only 15 cents; in 2007, the McDouble was $1.00, and a year later, in 2008 the price increased to $1.19, now in 2022 the cost is $1.39. With no market safe from price increases paying more each year is something we must expect and is typically out of our control. However, with insurance premiums, factors within your ability can raise or lower your premium. You might be asking yourself how the insurance premiums increase and why. Join us in this blog to find out. 

How Insurance Premiums are Determined

As mentioned above, raises in your premium can come from rate increases, but your driving record, credit score, past claims, and medical history also play a crucial role in how much you pay. This happens because insurance companies use statistics to forecast the cost and probability of a claim. For example, if you have had five speeding tickets in the past three years. Statistically, you will likely receive another violation, and the insurance company will prepare for that by increasing your rate. Even if you have filed many claims in situations where you were not at fault, expect your rate to grow. Just as if you have received many violations, filing many claims makes you a high risk for payouts from the insurance company. You may ask, how do insurance companies know your claim history? The Comprehensive Loss Underwriting Exchange or CLUE for short is a database that home insurers utilize to share home and auto claim information from the last seven years. This data is analyzed and used to determine your overall risks to insure.

What Causes Auto Premium Increases

There are many factors that can cause an increase in your auto premium, including receiving a speeding ticket or other violations such as DUIs or DWIs, moving to a new state, or being a new or old driver can affect your premium. But other factors, including a drop in your credit score, can also increase your premium. According to Investopedia, here are some high-risk behaviors that could lead to you paying more money for your auto policy:

• Moving violations, such as speeding, reckless driving, failure to maintain control, etc.
• Moving to a new state.
• Age, teenage drivers and drivers over 70 years old.
• Your credit score drops, or you finance a new vehicle.
• Lapse in coverage.
• Being in an accident.
• Multiple claims in a small time frame.

What Causes Life Insurance Premium Increases

The most common policy for life insurance is term life. Usually, term life insurance premiums will not increase unless your guaranteed level premium period ends. Term Life Insurance is the easiest to understand and most cost-effective type of life insurance.  Depending on age, you can select a 10, 15, 20, and 30-year term. As mentioned before, the real advantage of term life insurance is that the premium is guaranteed not to increase for the life of the term period. However, if you don’t have a policy in place, the longer you wait, the more you could pay for your policy. If life insurance is something that you plan on having, it is better to start as young as you can. To learn more about life insurance options and information about what affects how much you pay, check out our blog, “Deep Dive into Life Insurance.”  

What Causes Home Premium Increases

The cost of building supplies has a direct effect on premiums; recently, the global pandemic has caused the price of building materials to increase and caused supply chain issues that have contributed to rising premiums. Frequent natural disasters will cause rates to increase because insurance companies have to pay for repairs more often. For example, living in a state like California, where wildfires have been common in recent years, is a reason for the rise in cost. If your insurer conducts an inspection and determines you need a roof or electrical replacement, your rate could increase for the high threat of claims. As mentioned with other types of insurance, the frequency you file claims can also increase your home rate. Statistically, if you file multiple claims, the insurer will believe you will also file frequent claims in the future, resulting in you paying more for your coverage. Lastly, trampolines, swimming pools, and pets are known as attractive nuisances. These additions to your household can attract children onto your property and a potential risk for injury. So, your insurance company could raise your rates to compensate for the increased probability of claims. For more information on home premium increases, check out this more extensive blog from Policygenius.

What Causes Medical Premium Increases

Most of the price increases for healthcare comes from population growth, aging, and increased ambulance costs, Covid-19, and an increase in chronic illnesses such as diabetes, high blood pressure, back pain, mental health, falls, and high cholesterol, to name a few.  These combined make health insurance premiums increase annually, and unless there are significant changes to our healthcare system, price increases are here to stay.

Conclusion

With the world trying to figure out how to recover and get its footing after the pandemic, rising costs will be something that we deal with in the coming years. Thankfully, we can do a few things to keep costs as low as possible. Keeping your policies to cover you from paying even more when accidents or incidents happen is vital. Because cost increases are not limited to just insurance premiums, the out-of-pocket expenses will also rise. Price & Ramey is here to find a policy that best suits your budget and, more importantly, gives you and your family the protection you need. Call us at (877) 563-4386 to speak to a representative to assist you, or click here for a quote.