Clearing Up Insurance Myths
Did you hear the one about the 22-year-old guy from New York with the red sports car? The rumor is partly true - his car insurance is through the roof. However, not all urban insurance legends are based in fact.
We asked Dick Hospital, the Vice President of Underwriting for GEICO Insurance, to help dispel some of the most commonly held insurance myths:
1) Will I pay higher premiums on my car insurance because I'm under 25?
Yep. Younger drivers tend to have more accidents than older drivers, so you pay more. "Twenty-five is not the magic number, but historically, it's been used as a cut-off," says Hospital. "Make sure you ask your insurer if they provide small decreases on a yearly basis. You may pay more as a 20-year-old than you would as a 25-year-old."
2) Do men really pay higher premiums than women?
Unfortunately, yes. According to data compiled by the National Safety Council, 20-something men have a higher accident frequency rate than women. But once you and your sister hit 30, you'll both be paying the same adult rate.
3) Am I being penalized because I'm single?
Yes. "Clearly, there are many responsible people who are single," Hospital says. "But married people tend to have a lower accident rates. Who knows why - perhaps they spend less time running around or partying, or drive more carefully once they have kids."
4) Do sports-car owners pay higher rates?
Yes. Expensive cars are more expensive to replace. Simple as that. But since the kind of car you drive is one factor you have control over, consider buying a car that tests well in safety ratings. Four-door models tend to be safer than two-doors, for example. Check out the National Highway Data Loss Institute's safety ratings.
5) Are red cars more expensive to insure?
The jury is out on this one. "I can't speak for everyone else, but GEICO doesn't use color as a determining factor," Hospital says.
6) Will I pay higher premiums if I live in a big city like New York or LA?
This one is true. "People in Culpepper, Virginia probably pay a fraction of what New York residents do," Hospital says. "Theft rates tend to be higher in urban areas, where traffic is congested and there are more accidents." Cities also tend to be litigious environments - in other words, your neighbors are more likely to sue you. Other high-cost areas include Philadelphia, Chicago, Miami, New Jersey and Massachusetts.
7) I've heard that everyone needs life insurance. Is that true?
Not necessarily. If you're married or have children, then yes, you'll want term life insurance to make sure you're providing for your family. But what if you're single? "Unless they have very generous parents, recent grads have very little assets to protect, so they may not need life insurance," Hospital says. But, keep in mind that if you're young, you can buy a whole lot of life insurance, real cheap. And once you have it, you can keep renewing it.
8) I don't own that much stuff, so I don't need renter's insurance.
Wrong. Even if your house is never robbed or damaged by water, renter's insurance can still be protection against future earnings. According to Hospital, "People forget that renter's insurance also provides liability coverage in non-auto incidents. So if someone falls off your balcony or even if you hit someone on the street, you're covered against a potential lawsuit."
9) I'm covered under my parent's policy until I'm 25, right?
That depends. If you still live in your parents house, or if you are a full-time student under the age of 24 still living on campus, then you are most likely covered under you parent's homeowner's policy. When it comes to health insurance, you're covered under your parent's policy as long as you're a dependent under the age of 21 (or 25 if you're a student).
10) If I have an accident and my premiums go up, the insurance company must be trying to recoup their losses.
Absolutely wrong. "That extra surcharge isn't enough to cover our average $600 loss on a claim," Hospital says. "You pay more simply because people with prior accidents tend to have a higher probability of future accidents."
Lest you're beginning to consider getting married or moving to Culpepper, there are other ways to pare down your premiums. Hospital recommends taking a defensive driving course offered by the National Safety Council. They only cost around $40, and can save you 10% on your premiums over a 3-year period. Also, you can get good student discounts post-college, up to age 25. Finally, take public transportation so you won't get hit with a commuting surcharge.
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