Auto insurance surcharges lead to premium increase and therefore people may not be able to differentiate them from rate rise. However, not every premium increase is due to a surcharge. Knowing what is a car insurance surcharge and what is rate increase helps you in your efforts to gradually lower your premium and avoid future increases.
Usually, people use “rate increase” to mean both surcharge and increase in car insurance rates. A surcharge would naturally result in premium increase and that may confuse people. However, the underlying reason is different and that is where the distinction comes from. Remember that you can get a surcharge and premium increase at the same time. However, you cannot get a surcharge and pay higher rates for the same reason.
What Is Auto Insurance Surcharge?
Simple description of car insurance surcharge is that it is an additional charge applied to your premium usually for something you have done. So, it is something that was in your control like having a traffic violation ticket or causing an accident that leads to claims. Here are the common causes for car insurance surcharges?
- Traffic Violations: Drivers often ask how much does my insurance go up after a ticket? This suggests that they know they will be penalized for getting a ticket for speeding, passing when the light is red, reckless or dangerous driving and driving with a suspended licence or with a vehicle that isn’t fit for traffic or has no insurance. Do parking tickets affect insurance? The answer is no since it is not a moving violation that may lead to accidents and claims. Insurers apply a surcharge for traffic tickets because breaking traffic rules may lead to accidents and claims.
- At-fault Accidents: When you cause an accident you cannot blame the insurance company for increasing your premium. When you have an at-fault accident you can expect a large surcharge on your rates. However, you may see slight increases when you are not at fault too, especially when it is the second or third time and your insurance ends up paying for claims. Find out how much does insurance go up after accident?
- Lapse in Coverage: Insurance companies consider people who let their policies lapse as high risk because this suggests that the person doesn’t appreciate the value of insurance and likely to let it lapse again. You can find out how insurers view a lapse in car insurance coverage by following the link.
- Policy Cancellations: Another thing that insurers frown upon is a car insurance cancellation because usually something bad you have done causes a cancellation. Even it was due to something as simple as not paying the premium you are likely to pay more. For example, most insurers apply a surcharge when they agree to reinstate a policy that was cancelled due to non-payment. Also, other companies charge more when they find out that your policy was cancelled in the past.
- Bad Insurance Credit Score: Your financial problems reflect on your credit history and score. Most insurers apply a sizeable charge when they sell car insurance with bad credit because the correlation between credit history and claims are strong and has been proven by several reliable studies.
Difference between Auto Insurance Premium Increase and Surcharge
As you can see, you usually have control over the incidents that lead to surcharges. Sometimes, you may have to pay this additional cost because of a bad driver in your household or because of the accidents they caused. But it is still charged for something that is done by someone you include in your policy. On the other hand, your premium may increase for things that are out of your control. For example, your insurer may have to increase the premiums for every policyholder after a bad financial year with losses.
Surcharge is an additional amount your vehicle insurance company charges you for something you have done. A premium increase is usually something that happens out of your control like unavoidable increase in rates due to inflation. While auto insurance surcharge is in effect a penalty applied to you, rate increase is applied to everyone else.
Another distinction between surcharge and premium increase is that surcharge is applied only to your policy. But, premium increases are usually applied to every policyholder. Premium increases usually happen out of policyholders’ control and applied to everybody.
When Is an Auto Insurance Surcharge Applied?
Most states clearly define the surcharges and circumstances in which they can be applied. Also, every insurance company gets their surcharges approved by state insurance department. So, they cannot charge it willy-nilly or discretionally. Companies have systems in place for automatically checking certain records periodically and adding the charges to policies.
The reasons for surcharges are listed above. They need to show on your driving record in order for an insurance company to apply a surcharge for them. Also, your surcharge should stop when a ticket comes out of your driving record. Check here how long does a ticket stay on your record?
Essentially, a surcharge is an upward correction on the premium to reflect particular risks a driver brings on the table personally. Simply, you are made to pay more because of your bad driving record or low credit score. It is applied when the company discovers new information and this usually happens at renewals because companies check your records then. Find out how far back do insurance companies check driving records?
If you know exactly why you are getting an auto insurance surcharge you can perhaps deal with it better. For example, if you know a speeding ticket is coming off your driving record shortly, you can arrange your coverage in a way that will allow you to get new quotes at cheaper rates and pay less. You can get cheap auto insurance quotes by avoiding surcharges and reducing claims. That is why you may want to consider paying out of pocket when you have a small claim.
Also distinguishing a surcharge from a premium rise let you see when the rates go up. More importantly, you can see clearly when your car insurance goes up for no reason. Then, you may be able to lower the cost of insuring your car again by comparing quotes and switching auto insurance companies.
If you are not sure what is what you can call your insurer and get an agent explain them to you. They should be able to tell you what surcharges you are paying and if a current premium increase isn’t a surcharge but a rate rise, which has nothing to do with your personal details.