Have you ever wondered how the insurance company determines your auto insurance rate? The basic process is actually pretty simple. Insurance companies look at the things in your life that might increase your risk, and then they consider the things that might decrease your risk. They factor in what kind of vehicle you drive and your actual driving record, total up the columns, weigh them against each other, and out pops your premium!
- Some things that indicate higher risk: youth and inexperience, less education, gender (if male), a high-risk profession, being single, living in a “risky” neighborhood, driving a “risky” vehicle, a spotty driving record.
- Some things that indicate lower risk: maturity and experience, more education, gender (if female), a low-risk profession, being married, living in a safer neighborhood, driving a safer vehicle, a safe driving history.
One other factor that suggests you are a low-risk person is owning a home.
Auto Insurance and Owning a Home
Owning a home is considered a critical part of the American dream. The two-car garage and white picket fence indicate that you’ve arrived as a productive citizen. To an insurance company, it also shows that you’re someone who can be trusted with a mortgage.
Becoming a homeowner isn’t easy. You have to save for a down payment and pass a thorough credit check to qualify for a home loan. Once you’ve made your purchase, you have to make your mortgage payments, pay property taxes, and keep the property in good working order. It is quite a commitment.
So does buying a home automatically make you a better driver? Not exactly. Correlation doesn’t equal causation, but the two things definitely do go hand in hand. Insurance companies understand that the level of commitment required for home ownership often correlates with being a responsible driver. And they have mountains of data that say homeowners tend to be safer drivers.
If You Buy a Home
What kind of a discount can you expect if you take the plunge and purchase a house or condo? According to industry experts, most new homeowners see a five-percent to 10-percent decrease in their auto insurance premium, depending on the company they have their insurance with.
You don’t have to wait until your current term expires to take advantage of the homeowner’s discount. It’s a cinch to have your independent agent re-quote your insurance and factor in your new purchase. Whether you stay with your current insurance company or find a better quote with another insurer, you can take advantage of the newly available discount almost immediately.
In order to justify your discount, your insurance company may require you to provide evidence of home ownership. You may be asked to provide a mortgage payment coupon, a property tax statement, or a copy of your homeowners insurance policy as proof that you have purchased a home.
Note that it’s not necessary for your home and auto to be insured through the same company in order to take advantage of the homeowner discount. But see below for more info on another possible discount.
If You Sell Your Home
If you sell your home and don’t buy another one—that is, if you go from homeowner to renter again—you’re supposed to inform your insurance company. Yes, you’ll end up paying a little higher premium for your auto insurance, but you’ll see it go down again when you buy your next home.
Oh, and if you don’t do the courteous thing and let your insurance company know you don’t qualify for that discount any more, they’ll find out anyway as soon as they get your change of address notification. Honesty is the best policy, even if it means losing your discount.
Bundling Home and Auto
Another way you can convert your status as a homeowner into a discount is to bundle your homeowners and auto insurance together with a single company. You are required by law to carry auto insurance, and your mortgage likely requires you to have homeowners insurance as well. If you get both coverages from the same insurance company, you’ll probably qualify for a discount on both policies.
Discounts of all kinds are your insurance company’s way of rewarding you for being a safe, responsible person—or at least for looking like one on paper. Owning a home won’t protect you from lousy drivers, but it will give you a break on the premiums you pay to protect yourself and your loved ones from lousy drivers.