What are credits and surcharge in Auto Insurance?

15.03.2021
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Introduction

While offering auto insurance to vehicle owners, insurance company’s credits consider many aspects to calculate and present premium. Obviously, these companies do not want to go into loss but still want to provide insurance. So, they want to find out if the insured person is more likely to cause an accident for which the company will have to provide an insurance claim. If it is so, a higher premium will be offered to adjust the risks. Some of the factors that affect the premium amount are:

  • Driving experience
  • Nature of vehicle use
  • Driving and claims history
  • Location
  • Credit history
  • Surcharge
  • Make and model of the vehicle

In this blog, we will be discussing the role of credits and surcharges in auto insurance premiums.

Credit in Auto Insurance

Insurance companies predict losses using a credit-based insurance score. Credit is considered for calculating auto insurance premiums by almost 92% of insurers. Many people here might be thinking that information like sex, marital status, age, ethnicity, address, and income is looked at in this credit-based insurance score. But these factors are never considered. It may seem quite different from how financial organizations look at credit scores because the only information that is related to potential loss is considered. Insurers quote the fairest, most appropriate premium for every customer. The premium may vary from customer to customer but almost half of the customers pay a lower premium according to their score.

Surcharge in Auto Insurance

Surcharge in most of the cases may indicate some kind of penalty. In auto insurance, a surcharge means an increase in premium due to something that is in control of the vehicle owner. It may include accidents that the owner is involved in or the number of claims filed by the owner. Another typical trigger of surcharges is traffic violation tickets. According to an insurance company, a driver who has committed moving violations and received tickets is at a higher risk and those drivers file more claims. Regardless of the reason, the owner of the vehicle should be able to ask the insurance company and find out if a surcharge has been applied to the vehicle’s insurance policy.

Types of surcharges
The way to obtain extra costs put into the handling of a claim is a surcharge. Following are the reasons a vehicle owner may face an additional surcharge to the regular car insurance premium:

  • At-fault accidents
  • Late payment fee
  • State fee
  • Traffic violations
  • Lapses in coverage
  • Bad insurance credit score

A surcharge can be caused by a state-mandated fee, depending on which state the vehicle owner lives in. A state fee is a requirement of a state and it is not in the control of the vehicle owner. Extra payment for medical coverage is often required in No-fault states and this charge may be possibly called a surcharge.

How do insurance companies find out?

At every purchase of a policy and every renewal data after that, insurance carriers review the driving record of the vehicle owner. In order to determine if a surcharge is warranted, they will also look at any claims filed by the vehicle owner. A surcharge can stay for varying periods of time depending upon the nature of the violation.

A vehicle owner should try as much as possible to avoid the surcharges to keep the insurance policy premiums minimal. Payments should be made on time and policy should not lapse. The driving record should be kept in check and some amount of at-fault claim should be paid from the owner’s pocket. Sometimes, there are other ways too like talking to the insurance agent and asking for the removal of surcharge in exchange for your loyalty.

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