Surcharges are additional fees or levies applied to car insurance premiums based on specific risk factors or actions of drivers. These surcharges are meant to balance the increased risk associated with certain drivers or situations that are not included in the normal rating structure of the insurance policy. Surcharges can be applied for various reasons, such as at-fault accidents, traffic tickets, suspended licenses, or things like insuring a car with a rebuilt title. These surcharges are usually a percentage increase applied to the policy premium for a limited period of time.
For example, you may get an auto insurance surcharge after a speeding ticket that would last until that ticket comes off your driving record, which is usually 3 years in most states. At-fault accidents is another common reason surcharges are applied. Most companies apply a percentage increase to your policy up to 3 – 5 years for an at-fault accident and stop considering it in their premium calculations any more after that period.
When insurance companies pay claims, they use the premium pool, which is the collective pool of money from all policyholders’ premiums, to cover those claims. The principle behind surcharges is to ensure that applicants who pose higher risks are charged extra to balance the additional liabilities they may bring to the pool.
Just like discounts, car insurance surcharges are applied to risks meeting the criteria based on the company’s rating guidelines and according to the state rules. Typically, automobile insurers submit their surcharge structure to the state authorities, along with their rates and discount offerings. So, only the people who fit the criteria get charged surcharges and only the predetermined amounts or percentages. So, there isn’t a chance of you being singled out.
Here are some of the common reasons for surcharges
- Traffic Violations: Getting a ticket for speeding, driving recklessly, with a suspended licence or no insurance and DUI are some of the violations that may result in additional premium charges. Vehicle insurers apply a surcharge for traffic tickets because breaking rules may lead to accidents and claims.
- At-fault Accidents: Causing an accident, resulting in damages and injuries, not only cause the insurer losses but also a clear indication of high-risk drivers. Motorists can expect large surcharges after an at-fault accident. Also, several claims in a short time may lead to surcharges.
- Lapse in Coverage: Vehicle insurance companies consider people who drop coverage while still owning a vehicle as high risk and apply surcharges that may increase as the lapse in coverage gets longer.
- Missed Payments: Companies may apply additional charges when a policyholder misses a payment and they may apply surcharges at renewal for policyholders who have a habit of missing payments.
- Unusual Vehicle: Owning an unusual or riskier vehicle may result in insurance surcharges. For example, cars with rebuilt titles may result in a surcharge.
Typically, you can find out if you are paying for any car insurance surcharges and why by looking at your policy’s declaration page as companies often list the discounts as well as surcharges there. Otherwise, you can contact your agent or insurer and ask them because knowing why you are applied a surcharge may help you deal with it more efficiently.
For example, if you are applied a surcharge for a speeding ticket that should come off your driving records in a month’s time, you may get alternative quotes at that time without that particular mark on your record and see if it is worth switching to take advantage of it. Usually, your current insurer will have to wait until renewal to readjust your premium but other companies can quote a lower premium because you don’t have the speeding ticket on record anymore.
Overall, the system of applying surcharges and discounts aims to create a fair and balanced approach to car insurance pricing so that safer drivers don’t have to pay higher premiums to replenish the depleted premiums reserves. Also, just like discounts, every company has their own surcharges and each company may apply a different percentage or amount of a surcharge for a particular reason. So, it is always worth shopping around and finding the most competitive company for you after everything is taken into account.