How many times has your insurance premium increased? How many times has the bill come, either in the mail or electronically, and you notice something, something that you don’t like to see. You see that dollar sign is followed by higher numbers. The premium goes up, up and up. Really upsetting to you, isn’t it? Let me tell you when it is OK for your insurance premium to increase and when it is not.
You are a good driver. Maybe you had one small fender bender a few years ago, but you paid for it out of pocket. You had a speeding ticket, sure, but you went to traffic school, so that should not show on your driving record, right? Your car is getting older, and the value is dropping fast. You are becoming a more experienced driver. These things should make your auto insurance premium get lower, right?
At the same time, you changed jobs, and your commute is a lot farther than before — that’s lots more miles going on that old car of yours. At long last, you ditch the 1985 Ford LTD Wagon for a brand spanking new car, with all the bells and whistles — a backup camera, sensors to help you park without bruising your wheels, remote startup, heated seats, the works. These things should make your car insurance premium get higher, right?
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How about your home insurance? You take good care of your home. You’ve never filed a claim. You maintain the roof, and you fixed that little leak lickety-split. The plumbing works — I mean, the toilets flush, and water comes out of the faucets. Can’t ask for more than that. The electrical panel seems fine. So no maintenance issues — the premium on your homeowners insurance should go down, right?
Karl is an insurance agency owner, insurance expert witness in state, federal and criminal courts, and radio talk show host. For more than 30 years, Karl has helped consumers understand the complex world of insurance. He provides actionable advice and distills complex insurance concepts into understandable options. He appears regularly in the media, offering commentary and analysis of insurance industry news, and advises lawmakers on legislation, programs and policies.
There are some gorgeous bougainvillea that you’ve watched grow for years. They look so beautiful as they migrate up the side of your home. Sure, critters like to call it home, but they never bother you, so what’s the harm? You also have that incredible tree that provides much-needed shade for you in the backyard. So lucky, too, because it has grown so well it even gives shade over your house, keeping it cooler in the summer and saving on your air conditioning bill. What? You want to call those fire hazards? Fine, so then these things would make your homeowners insurance premium higher, right?
Let's give this some thought
Think about all of this now. Not emotionally, purely financially. Forget about the big, bad insurance company. Think about what things cost and the likelihood of having a claim.
Your new car costs tens of thousands of dollars more to repair (not an exaggeration) than your old one. Those fancy parts mean big bucks. Just because you had a speeding ticket that doesn’t show up on your driving record doesn’t mean you weren’t speeding. And that small accident that you paid for out of pocket? Yeah, well, if you paid for it, you were likely the cause of the accident. So truly, you are a driver with a speeding ticket and an at-fault accident, and because of your new job, you are driving more miles than before. The risk of you having an accident now is likely two to three times what you are paying for your insurance policy right now.
So if you get another ticket or have a more serious accident, and the insurance premium goes up to reflect that, yes, that makes sense. That is how it works.
If your premium does not increase when the risk does, when an issue would cost more actual dollars and your exposure increases, then when would it ever increase? When would that be OK, if not then?
Let's apply this logic to your home
Your house is your castle. Likely your largest investment. Yet the roof is old, it has leaked already, meaning the likelihood is high that it will leak more. Any storm activity could lead to a bigger leak and a claim being filed soon thereafter. Those vines growing up the side of your house are literally eating away at the outside walls. They would also do a phenomenal job of catching flying embers if there happened to be a fire anywhere in the vicinity. And the big tree towering over your house? Yeah, that not only poses the threat of crashing down on your roof, but it is like kindling just waiting to catch fire, akin to a big hand waving at any nearby fires — “Pick me, pick me!”
So if your house burns down, is it OK that your homeowners insurance premium goes up? Yes, yes, it is — that is how it works.
While nobody likes to pay more for their insurance policy from one year to the next, we need to recognize that as our risk level changes, our premiums will change as well. Someone with a speeding ticket is statistically more likely to get more tickets, and those who speed tend to be more likely to have accidents. It isn’t personal, it’s actuarial.
Maintaining your home is not an option, it is a necessity. And if the worst happens and you lose that home, and hundreds of thousands or even millions of dollars are spent on your behalf to rebuild it, your insurance premium is going to go up. Numbers don’t lie, and they tell us that some people have claims and losses, and they keep having claims and losses. Others simply don’t.
So the next time you have an insurance premium increase and get upset about it, answer this one question:
When do you think it is OK for your insurance premium to go up?
Want to learn more about insurance? Visit KarlSusman.com.
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