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Insurance Rates Are Calculated on Risks: Know the Factors

by Lorraine Watkins

No matter what kind of insurance you need, the rates you pay are based on algorithms of risk. In other words, insurance companies crunch lots of data to determine how likely you are to be in a car crash or swept away in a flood, come down with a long-term illness, even how long you will live. Each type of insurance has its own risk considerations. By understanding these factors, you can take steps to save money on all your insurance. Here's what you need to know:

Auto Insurance: the 90210 Factor
There seems to be an inverse relationship between how much you pay for where you live and how much you pay for car insurance. ZIP Codes in the world of insurance are a kind of shorthand for number and severity of claims. Can't move to a more desirable ZIP? Other factors that count: age of driver and age of the vehicle (the older the better), number of miles driven per year, traffic violations, and previous claims (the fewer the better). You can't instantly add years to your life (or your car's) but you can go to traffic school to erase violations or points from your record. Clean up bad credit and you are likely to get a better rate. Marry a good driver and your premiums will probably go down.

Home Insurance: 90210 Again
To get a break on auto insurance, you need to live in a good neighborhood. But what you save in auto, you make up for in homeowners insurance, which is usually based on the replacement cost of your dwelling and the cost of replacing its contents. Factors that affect your likelihood of being sued also matter. If your dog is an aggressive breed, insurance will be harder to find and more expensive to get. Filing claims greatly affects home insurance rates--according to industry experts, a single unpreventable weather-related loss is unlikely to hurt your standing with the company. However, you might want to carefully consider a claim before you file--because if you get two, insurers will think twice about taking you on.

Health Insurance Is Cheaper When You Don't Need It
When you are young and healthy, the cost of health insurance is relatively low. Your personal and family health history is predictive of your future claims, so if you have health problems you will have insurance problems. Women of childbearing age pay more, as do tobacco users.

Life Insurance: History and Habits
Life insurance companies calculate rates for policies based on data points, many of which you cannot control. Some of these include the year in which you were born, your gender, and your medical history. Other risk factors which influence the cost of your coverage but that you can control include what you put in your mouth, your hobbies, and driving habits.

Health Plan One
Insurance Information Institute
U.S. Census Bureau

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