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What Makes Auto Insurance Premiums Rise

Changes in car insurance laws are reflected at both the state and national levels, and it seems that most changes tend to increase the price of premiums. The economy and inflation have contributed to the escalation of the price of coverage for several years now. In fact, the rates for all types of insurance have been continually creeping up.

What Dictates Insurance Premiums

Primarily, car insurance premiums are dictated by the state, and almost every state requires individual coverage. Insurance companies attempt to maintain a percentage of payouts to overhead based on a 60/40 split. Although 40% seems a little high for overhead, it has a buffer that is both profit and a hedge against unforeseen expenditures.

Since this ratio is maintained very closely, rates constantly rise. More accidents, higher repair costs, and other escalating factors increase premiums by $1 for every $0.60 the provider pays. For this reason, car insurance companies make money every year. Some people, many of them lawmakers, would like to change the 60/40 split because they feel that the overhead figure is too high.

The Effect of Health Coverage on Auto Rates

Car insurance rates are also affected by health insurance to some extent. Recent increases in health insurance coverage will undoubtedly have an impact on auto premiums. Health insurance amounts are adopted per state, and as the amounts of payouts for claimants rise, auto policies will begin to reflect similar increases.

Increasing Minimum Coverage Amounts

Auto policies often have a minimum coverage of 15/30/5 (these figures represent dollars in thousands). The first number is the coverage for an individual hurt in an accident, the second is the total for all occupants hurt per occurrence, and the last number is property damage. This ratio has been in use for more than 30 years, without any adjustment for inflation. A number of states have made an upward move in these minimums, and others are in the process of doing so.

Texas made a change to a coverage minimum of 30/60/25, which could be a yardstick for changes in other states. It might seem that this more than double increase would drive premiums to twice their current status, but the consensus seems to be that it will only amount to about a 3% change.

The largest expense for many policyholders might be a fine assessed for failure to increase minimum amounts per new laws. Some states are setting fines of up to $200 for failure to comply with new limits. The best protection is to remain current with the minimum limits and other changes to auto insurance requirements. It might cost a little more, but if you ever need it, you’ll be glad you are covered.