There are a few reasons for price fluctuations. Vehicle insurance surcharges lead to premium increase and therefore people may not be able to differentiate them from rate rises. However, not every upward movement is due to a penalty. Separating them from each other helps in efforts to gradually lower policy costs and keep unexpected hikes at bay. This post will try to define them and give several examples to their use in an attempt to highlight dissimilarities.
Usually, people use “rate increase” to mean both surcharge and upward change in car insurance rates. Both would naturally result in premium rise and that may confuse people. However, the underlying reason is different and that is where the distinction comes from. Also, you can get both at the same time but not for the same reason.
What Is Auto Insurance Surcharge?
It is an additional charge 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. Here are the common causes and examples?
- Traffic Violations: Drivers often ask does my insurance go up much after a ticket? This suggests that they know they will be penalized for getting a ticket for speeding, passing when the light is red, being reckless or dangerous and driving with a suspended licence or with a vehicle that isn’t fit for traffic or has no insurance. By the way, parking tickets aren’t a concern here because they are not a moving violation that may lead to a trouble and damage. Underwriters apply a penalty for traffic tickets because breaking rules may lead to accidents and claims.
- At-fault Accidents: When you cause damages you cannot blame insurers for asking more money due to clear indication that you may be riskier than they first taught. When you have an at-fault accident you can expect a large surcharge. However, you may see slight uptick when you are not at fault too, especially when it is the second or third time and they end up settling claims. You can quickly check a likely premium rise after an accident.
- Lapse in Coverage: They consider people who drop coverage as high risk because this suggests that they don’t appreciate its value and likely to do it again. Many people don’t realize importance of maintaining an unbroken history and costs of lapses.
- Policy Cancellations: Another thing that is frown upon is a cancellation because usually something bad you have done causes it. Even it was due to something as simple as missing an installment you are likely to pay more. 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 a termination in the past.
- Bad Credit Score: Financial problems reflect on the credit history and score. Most companies add a sizeable extra on their usual prices when they sell vehicle insurance with bad credit because the correlation between credit history and claims are 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.
Difference between Auto Insurance Premium Increase and Surcharge
As you can see, you usually have control over incidents that are considered risky and end up being costly. Sometimes, you may have to pay this additional cost because of a bad driver in a household or because of the collisions they caused. But it is still levied for something that is done by someone you include in a policy.
On the other hand, rates may go up for things that are out of your control. For example, underwriters may have to push up prices for every policyholder after a bad financial year with losses.
Surcharge is an additional premium payable for something you have done. A rate increase is usually something that happens out of your control like unavoidable uptick due to inflation. While the former is in effect a penalty applied only to you, the latter is applied to everyone else.
So two clear distinctions are that one is only for you and as a response to your faults while the other is levied on everyone for something they have no control over.
When Is an Automobile Insurance Surcharge Applied?
Most states clearly define it and circumstances in which they can be levied. Also, each company gets them approved by state ins. department. So, they cannot charge it willy-nilly or discretionally. They have systems in place for automatically checking certain records periodically and loading the costs appropriately.
The above listed reasons need to show on your driving record before you can be penalized for them. Also, it should stop when a ticket comes out of a record. Check here how long does a ticket stay on 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 a bad record or low credit score. It is applied when they discover new information and this usually happens at renewals because they check them then. Find out how far back do insurance companies check driving records?
If you know exactly why you are spending extra you can perhaps deal with it better. For example, if you know a speeding ticket is coming off record shortly, you can arrange coverage in a way that will allow you to get cheaper prices afterwards. You can get cheap quotes by avoiding anything that raises the risk level and reducing claims. That is why you may want to consider paying out of pocket when you have a small loss.
Also distinguishing them let you see when prices go up. More importantly, you can see clearly when car insurance goes up for no reason. Then, you may be able to lower the costs again by comparing quotes and switching companies.
Many people may be under the impression that keep moving from one to another isn’t good. It may be so but this doesn’t mean that you have to put up with everything. Sometimes, you may be being deliberately priced out so that you leave. Perhaps you don’t get the hint and keep spending a small fortune to stay where you are not wanted. Some companies purposefully hike prices for drivers they consider dangerous to push them out the door.
You can call the agent and get them explain it to you if you are not sure or clear about anything. They should be able to tell you what additional costs you are paying and why did a premium go up? Don’t be shy and put up with them, especially when it is so easy to check and find alternative solutions online and offline. Furthermore, don’t overstay your welcome.