Risk Mitigation in Auto Insurance

Every state in this country requires drivers to carry auto insurance and it can take some time to find a good carrier who provides well-rounded coverage at a reasonable rate. However, don’t expect that rate to carry over if you move. There is a huge variation in auto insurance rates by zip code and where you live could make a significant difference to the standard premiums you have to pay.

You may wonder why there should be such a big difference in your car insurance rates by zip code. After all, you are still driving the same car and your driving record is just as good as it ever was. And if you stick with the same national carrier you have always used, why should anything be different? The answer lies in the nature of the insurance industry and how auto insurance, in particular, works.

So, why do you need auto insurance?

Insurance is designed to provide people with a financial net in case anything were ever to happen to them or their possessions. Pretty much anything can be insured these days, as long as it is considered to be an asset to its owner. Cars, boats, motorcycles, businesses, homes, and even body parts can be insured as long as the underwriter is willing to take on the risk. And that really is the crux of the issue – risk.

How exactly does this work?

When an insurance company agrees to insure your car, they are essentially agreeing to pay for any damage to your car resulting from an accident. They also undertake to pay your medical bills or those of a third party in case of any injuries. Now an insurance company is just like any other business and their primary goal is to make money, which they cannot do if they are constantly paying out large claims. That is why they assess the risk posed by each potential customer and offer premiums based on that evaluation. For instance, drivers with terrible driving records usually have a difficult time getting auto insurance unless they are willing to pay exorbitant premiums. The rationale here is that a driver who is a bad risk is more likely to get into an accident and make a claim.

That same principle of risk mitigation is the reason why there is such a variation in car insurance rates by zip code. Different towns have different crime rates and traffic concerns. For instance, if you live in a town that is heavily congested the chances are higher that you will get into a car accident. As a result, your premium will be much higher. The same holds true for towns that experience a high volume of car crimes.

To find out what type of base rate you can expect in another town or state, you should take the time to compare auto insurance rates by zip code. There are many online sites where you can compare insurance quotes by state for free, and this information can go a long way toward helping you understand what you should be paying for car insurance.