Car insurance is required by law for Minnesota drivers and can be costly for some. You may go your entire driving career without needing to make a claim. Or you may end up making multiple claims. Since the outcome will be different for each driver, how do insurance companies determine what your premium will be?
Insurance companies use several factors when determining the rate of your policy. The state of Minnesota provides these companies with set guidelines on how they’re allowed to calculate individual premiums. Here is a list of items that may affect the cost of your insurance policy:
- Driving record – Have you been in an at-fault collision or received a ticket in recent years? The more incidents on your record, the greater your premium will be. If an insurance company believes you have too many marks on your record, they could deny you coverage. In Minnesota insurers are not supposed to count a collision against you unless you were at least 20% at fault.
- Age –Statistics show that certain age groups have higher accident rates than others. For instance, teenagers and senior citizens typically pay a higher premium because they’re known to have more accidents.
- Type of vehicle – More expensive vehicles require a higher rate of coverage because they cost more to fix or replace.
- Deductibles –Insurance companies usually offer various deductibles. Your premium will depend on the deductible you select. If you want your premium to stay low, choose a higher deductible. You will pay that amount out of pocket, however, before the insurer pays for damages to your car.
- Discounts –Certain insurance companies will offer discounts to customers who buy multiple policies. For example, you may be offered a discount on your car insurance if you have a homeowner’s insurance policy with the same company.
- Area of residence – Your premium may be lower if you live in a rural area and higher if you live in a more populated, heavy traffic area, or high car theft area.
- Who lives with you – Your auto policy typically covers you and any relative who lives with you. If someone in your family is a high risk driver, that can cause your rates to be higher. If this is a concern, you can sometimes exclude that driver from your coverage – just do not do so and then let them drive. Your insurance would not cover the loss.
You won’t know how important insurance is until you need it.
No one likes paying for insurance, but going without insurance, or buying minimal coverage, can lead to a lot of misery. First, if you own and drive a car in Minnesota, it is illegal not to have insurance. If you do not have insurance and cause a crash (or somebody uses your car and causes a crash) you are personally responsible to pay any car damage and injuries, and you might face criminal charges.
Collision and comprehensive insurance is what pays to repair and replace your car if you are at-fault or no one else is, such as a deer, or a flood or hail. If you chose not to buy collision coverage, no one will pay to repair or replace your damaged car unless another insured driver accepts fault for the crash.
You select the amount of coverage to buy, and if you buy the cheapest coverage allowed, you may hurt yourself or your loved ones in the long run. What most people do not know is that the amount of liability coverage you buy to protect yourself if your car injures someone else, is also the same amount you can recover under your own policy if someone uninsured or without enough insurance injures you or a family member.
Every year we face cases where we have to tell our seriously injured client that there is not enough insurance money to adequately pay for what they have lost because they bought minimal Uninsured Motorist or Underinsured Motorist coverage.
Our recommendation is that everyone consider having at least 100/300 Bodily Injury or “BI” and Underinsured Motorist or “UM/UIM” coverage. That is: $100,000 maximum per person, $300,000 maximum per collision if there are multiple injured people, to protect you if you caused the crash – and same amount of Uninsured and Underinsured coverage. This is what will cover you or family members, or occupants of your car, if the at-fault driver is underinsured. Buying additional Liability and UM/UIM coverage is not that expensive for most drivers.
If you are a professional or have a high income or substantial assets, you should buy an Umbrella Liability policy of least $1 million. We recommend you buy umbrella coverage both to protect you if you or a permissive driver of your car is at fault, AND add to that Umbrella a UM/UIM endorsement (your agent should know what this means). Some insurers do not offer this, and you have to expressly ask. With that endorsement, if an uninsured or underinsured driver injures you or a family member, you can look to that $1 million Umbrella coverage to help pay your own or your family members’ losses from injuries. Many insurers will provide this type of Umbrella coverage for just a few hundred dollars per year.
Why is it important to shop around?
Be thoughtful when selecting your vehicle insurance policy. If you’re not satisfied with what has been offered, shop around. Ask friends. Ask an independent insurance agent who sells policies from various companies. Ask us. It may take a little time to gather quotes from multiple companies. But in the end, the benefits of choosing the right plan will far outweigh the time it took to find it.