Why Is Insurance Higher For a Person Under 25?

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Insurance Q&A: “Why is insurance higher for a person under 25?”

Insurance is a numbers game…bottom line. There is a simple answer to every insurance question that begins with, “why is insurance so expensive for X?”

The short answer is because the group in question causes, and/or is involved in more auto accidents and receives more tickets than the average driver. Period.

The same goes for why car insurance is so expensive for teenagers.

You may ask what tickets have to do with it? Same deal; drivers with more tickets are more likely to get into accidents.

But in order to completely understand it all, you need to know how insurance rates are determined.

Let’s focus on one particular piece of the equation to demonstrate why rates are higher for people less than 25 years of age.

Insurance companies keep track of every claim they have to pay for (because it is money they actually lose).

Additionally, there is an organization, known as Insurance Services Organization (ISO) that allows insurance companies to access their compiled data about insurance claims from other companies.

What do they do with this information?

The next step in the process, simplified for the purpose of this article, is to plot the data on a graph and look for certain trends that stand out from “the norm.”

When the information is plotted, it becomes obvious who has more accidents. Naturally, insurers charge those individuals higher insurance premiums.

For example, newly licensed individuals, people under 25 years of age, and those who aren’t married.

Conversely, those with historically fewer auto accidents are charged lower premiums for coverage.

This is also the reason insurance companies review your MVR, C.L.U.E. report and even vehicle history records to determine exactly what type of driver, or “risk,” you represent in terms of filing a claim.

It is worth noting that insurance companies are not allowed to evaluate us based on attributes that can be considered discriminatory, such as race or religion.

What is this information leading to?

Nowadays, insurers are attempting to segment their potential insured into as many different identifiable attributes as possible. This will ensure that those who deserve cheap car insurance get it, and those who are likely to file a claim will pay more. It’s really a way to make it more equitable for everybody.

This pricing model gave rise to the new craze of providing discounts to drivers (good student discount, good driver discount).

For example, if you’re part of a group that normally pays higher car insurance premiums, you may still be able to achieve a lower overall premium for having a good insurance score, maintaining continuous coverage, or being accident free for a specified period of time, perhaps three to five years (how can I lower my car insurance rate?).

Get online insurance quotes or visit your local independent insurance agent to obtain quotes from multiple insurers. The premium you pay may be greatly reduced by seeking coverage from the type of insurer who has an appetite for your particular “risk group.”

The good news is that when it comes to life and health insurance, the younger you are, the more likely you are to pay a lower premium for coverage…so you’ve got that going for you!

(photo: cappellmeister)

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