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How Are Insurance Rates Determined

When you purchase car insurance, you are approving a set of rules and regulations of which you may not even be aware. Insurance companies use these rules to determine rates; some of these rules are understandable, while others are questionable. It pays to understand exactly how your insurance rates will be calculated. Find out how rates are calculated and get car insurance quotes online free
red carAn insurance score is a rating used to foresee the probability that a customer will file an insurance claim. This score  is based on an analysis of a consumer’s credit rating, and the method for calculating it varies from insurer to insurer. While many companies use proprietary formulas to calculate the scores, the factors used in the calculation include the customer’s unsettled debt, length of credit history, payment history, amount of revolving credit versus amount of credit in the form of loans, available credit and monthly account balance.  Unlike a credit rating, which uses personal financial information to determine your ability to repay debts, insurance-score calculations do not factor in your income..
Insurance companies justify the use of insurance scores by quoting studies that actually show a positive correlation between credit scores and insurance claims. At some level, this may seem to make sense. At the level of minor traffic accidents, for example, it is reasonable to argue that individuals with poor credit are more likely to file claims, if for no other reason than the fact that they lack the funds to make repairs on their own.

Of course, if we look at the logic behind insurance scores we might want to look at it also from a business perspective: insurance scoring is quite profitable, especially since almost nobody qualifies for the lowest-tier pricing. Keep in mind that insurance premiums are a recurring revenue stream for insurance companies, and the scores help justify higher premiums.
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