What Are Auto Insurance Surcharges and Their Implications?

When car insurance companies calculate premium quotes they use rate charts applied according to drivers’ history, age, type of car insured, zip code and so on. Each company determine own rates and therefore quotes would be different from each of them. Then, each company may apply discounts to bring down the costs a bit more.

A surcharge is an extra charge applied on top of premiums once they are determined by rates. In other words, it is the opposite of discounts and it raises your premium at certain percentage. Most companies talk a lot about how much discounts they offer to their customers. They hardly talk about possible surcharges and why would you face them.

What Are Possible Surcharges and Why They Are Applied?

Auto insurers set rates for certain group of people, cars and other factors. They group policyholders and set rates accordingly. An applicant may fit well in certain rate group but would have something that bother the insurer. So, the company would set the rates for this person and apply a surcharge for the one mishap they see. For example, they may decide to increase the rates for this otherwise a good driver around ten percent because the company found out about the 6 points in the driving license. Here are some of the possible surcharges.

Traffic moving violation tickets such as getting caught by a red light camera or for speeding are common reasons for surcharges. These tickets go onto your DMV records and can be seen by auto insurers. Policyholders need to inform their insurer of such mishaps. Even they don’t companies will find out about them at some stage and increase the rates accordingly.

There points on the driving license of a perfectly good driver may get a five percent surcharge while a DUI can get as much as three hundred percent surcharge with some companies. It is simply a way of an insurer saying get lost. Some companies may just refuse to offer any renewal terms or cancel the policy the moment they hear about DUI. This would be the ultimate surcharge.

Accidents and claims are common reasons for surcharges as well. When you have a claim you will see some increase in your premium at renewal. For example, if the over claim payments were large and your insurer had to pay them all as you were 100% at fault you would see a surcharge of around thirty to forty percent. This may increase if you got a ticket as well for the accident.

Who Determines Vehicle Insurance Surcharges and Amounts?

Each state may have certain rules and regulations about maximum surcharges and maximum period they can be applied. But in most cases each auto insurance company is free to determine why they would apply surcharges, how much and how long. They should normally disclose their surcharge charts but with most companies they will only provide it if you ask.

While one company charges thirty percent extra for one issue the other one may only charge ten percent. That is why surcharges are as influential as discounts on the final premium requested.

How Long These Automobile Insurance Surcharges Are Applied For?

Luckily they are not forever and usually most surcharges expire after three years. This may be enforced by states or become an industry standard since most companies follow it. For example, a speeding ticket could cost you four points on your license. These points would be removed from your license after three years and your insurer would remove the surcharges.

Varying levels of surcharges may be applied during this period. For example, you may get a forty percent premium increase at your first renewal after a serious at fault accident. If you have no other issued in the following year, it may be reduce to twenty percent for the second and ten percent for the last year.

Again, one company may apply the surcharges in a scaled down fashion as above while the other company would be applying a flat surcharge. They are not set in stone and each company chooses their own application. Therefore, it is always best to get alternative quotes at each renewal and see which company is more advantages for you following the changes in your circumstances.

Leave a Reply