"Understanding Car Insurance: Paving the Way" is the seventh video in the Federal Reserve Bank of St. Louis series, "No-Frills Money Skills." This episode uses a radio talk show format to explain various aspects of car insurance. From the responses to questions from callers, students learn several key concepts and terms related to car insurance. The content for these videos was reviewed by members of the Missouri Insurance Education Foundation.
In the final segment, students learn about the insurance application and underwriting process. The segment includes a description of some of the personal and vehicle information that insurance companies use to establish rates and determine eligibility.
Below is a full transcript of this video presentation. It has not been edited or reviewed for accuracy or readability.
So, what determines the price of insurance? It depends on a number of things, but in general, it’s a group decision involving actuaries, insurance agents and underwriters.
Actuaries are professionals who work for insurance companies. They use mathematics, statistics, probabilities, and economics to establish premium prices for various types of insurance.
Insurance agents—and oftentimes, websites—serve as the public face of the insurance company, gathering the potential clients’ information during the application process. An applicants’ credit score is a key factor for consideration for insurance coverage, along with motor vehicle reports.
In addition, applicants answer questions like: How old are you? Young people tend to drive less safely than older people. How many miles do you drive in a year? More driving experience generally means fewer accidents. Have you had any at-fault accidents or speeding tickets in the past five years. Companies also look at your driving record, the type of car you drive, and where you live.
This information is sent to an underwriter who decides whether an applicant is qualified to buy insurance from the company. Underwriters use the applicant’s answers to approve or deny coverage. They look at how much you drive, whether you own a home or rent, your marital status, and even your gender.
Young men typically pay more for insurance than women. Statistically, they get more tickets for speeding and reckless driving and they tend to engage in riskier behaviors. Young men also have more expensive accidents and make the most insurance claims. So, until age 25, males pay much higher rates.
In general though, insurance rates go down as drivers grow older, if they don’t have accidents or traffic tickets. Additionally, some insurance companies offer better rates on car insurance for people with more types of insurance with their company. Examples include renter’s or homeowner’s insurance. Also, some insurance companies even offer a “good student discount” for students with a “B” average or above, so it pays to keep your grades up.
As you can see, there’s a lot to learn about insurance, but with your own research and the information I’ve provided, hopefully you can map out a route that is easy to navigate and understand.
I’m Kris Bertelsen, and I’ll see you next time.