While some people call it a "rip-off" the fact is, car insurance companies have a lot of interesting facts behind the smoke and mirrors.
Think about it for a minute. If this were really true, you would simply switch insurance companies a couple times a year, until it became free.
Heres's how the business works in order to "save people $400 or $500 per year on average"
TACTIC #1 - Vehicle Depreciation
- Let's say you get an auto insurance policy.
- A couple years later, you decide to switch to another company
- The new company says "You will now be saving $500 per year"
- During those two years with your previous insurance company, you car has been losing value as it ages, and gets more miles put on it.
- Since the car will be cheaper to fix, or replace, in the case of an accident, it is therefore a lot cheaper to insure.
- By NOT switching companies, chances are you will be paying a company way too much after even just a year, let alone 5 or 10.
Basically, the newer your car, the more it pays to switch more often, or convince your current company that they are over charging you.
How Much Are They Over-Charging?
- Well, if you own a car that you paid $25,000 for, and were paying $150 per month for insurance.
- After 5 years, your car would be worth about half of its original price.
- Therefore, would it not make sense that the insurance should cost at least half as much? Plus additional discounts if you are a good driver.
TACTIC #2 - Increasing Rates
Your insurance company benefits when you get into an accident or get a tickets in some cases. For example, when you get into an accident, they will usually increase your rates. In fact, some companies hvae built their reputation on signing people up with really cheap insurance, and then after a mark on their driving record, their insurance premiums shoot through the roof.
Increasing rates isn't always obvious, or dramatic. Quite often, your rates will slowly climb over time.
Probably your best weapon against this is to regularly check rates with a new insurance company, as well as with your current one. Sometimes switching is not always best.