What Are Automobile Insurance Surcharges?

Surcharges are essentially penalties for drivers whose actions caused vehicle insurance companies to believe that the risks of insuring such drivers increased and therefore they must charge higher premiums. They are in a way opposite of discounts offered for risk reducing factors and behaviors. Both surcharges and discounts are applied individually to qualifying (or deserving) motorists.

In other words, it is an additional levy applied to premiums 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 a claim.

The amount (or rate) of auto insurance surcharges changes depending on the state rules and companies. They are not much talked about and therefore people may not put a pin on them but they would usually know why their premiums have gone up. Here are the common reasons for getting penalized and examples?

  1. Traffic Violations: Getting a ticket for speeding, ignoring a red light, being reckless or dangerous, driving with a suspended licence or with a vehicle that isn’t fit for traffic and having no insurance are some of the violations that result in additional premium charges. By the way, parking tickets aren’t a concern here because they are not a moving violation that may lead to trouble and damage. Vehicle insurers apply a penalty for traffic tickets because breaking rules may lead to accidents and claims.
  2. At-fault Accidents: Causing an accident and damages is a clear indication that the driver may be riskier than the insurer first thought so they ask more money to continue the coverage. Motorists can expect large surcharges after an at-fault accident. However, they may see slight uptick when they are not at fault too, especially when it is the second or third time and insurers end up settling the claims. 
  3. Lapse in Coverage: They consider people who drop coverage as high risk because this suggests that they don’t appreciate its value and are likely to do it again. Many people don’t realize the importance of maintaining an unbroken history and the costs of lapses.
  4. Policy Cancellations: They frown upon cancellations because they show a preference towards avoiding premium payments and often due to non-payment of premiums and they charge for such applicants. For example, most of them apply a fee when they agree to reinstate coverage that was cancelled due to non-payment. Also, others offer expensive quotes when they find out about a termination in the past.
  5. Bad Credit Score: Financial problems reflect on the credit history and score. Most companies add a sizable extra on their usual prices when they sell vehicle insurance with bad credit because the correlation between credit history and claims is strong and has been proven by several reliable studies. That is why two identical proposal forms would receive different quotes when they don’t have the same score.

Essentially, a car insurance 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 a bad record or low credit score. It is applied when they discover new information and this usually happens at renewals because they check the records then.

And the related reasons need to show on driving records before motorists can be penalized for them. Also, it should stop when a ticket comes out of a record. Usually, most penalties like speeding tickets drop from your record after 3 years. Things like DUI can stay there as long as 7 years.

Most companies check for previous accidents and claims any insured driver caused going back at least 3 years. Some companies may go as far as 5 years and this may be good for drivers with a longer record as they get larger discounts. On the contrary, it may force drivers who had accidents 4 or 5 years ago to look for companies that look back only 3 years.