Bankruptcy And Your Auto Insurance Premium
Declaring bankruptcy can, unfortunately, result in a significant increase in auto insurance premiums. This is because most auto insurance companies check their customers’ credit as part of the process of assessing the risk of insuring them. Even though experts have cautioned car owners against filing for bankruptcy, the ongoing recession and declining economic situation have left many cash-strapped individuals without any other option, especially if they want to avoid losing their homes and other important investments.
Just like blemishes on a driving record are seen as an indicator of a poor driver, auto insurance companies consider a bankruptcy on a credit report to be a major indicator of poor financial judgment and responsibility. Because most state governments allow insurance companies to use credit scores in their assessment of the premiums they charge, individuals who have a bankruptcy on their credit report are particularly vulnerable. Since auto insurance companies prefer to take on as little risk as possible, customers with a negative factor on their credit report – like a bankruptcy – are typically charged higher auto insurance premiums to compensate for the higher risk they represent to the insurance company.
Drivers who are preparing to declare bankruptcy need to be as smart as possible about acquiring auto insurance. There is some leeway in the process if they secure an auto insurance policy prior to moving forward with their bankruptcy. One key to keeping premiums at the lowest rates possible is to always pay on time. Drivers should also be aware that the insurance company will check their credit report before they renew their policy, which typically happens once a year. If a rate hike is eminent, it’s better that drivers are prepared ahead of time so they can seek out competitive quotes from other insurance companies. Since there are a wide variety of insurers in the marketplace today, it’s worth the effort to shop around for the best auto insurance rate. Also make sure that if a credit check is unavoidable in obtaining car insurance, you are up to date on all the various discounts you may be applying towards your auto insurance policy. These discounts can come from safety features on your car, obtaining multiple types of insurance from the same company or a good driving record.
Beyond avoiding bankruptcy, or at least timing it so that a dramatic increase in auto insurance premiums can be avoided for as long as possible, the best way to control auto insurance costs is to drive as safely as possible at all times. While for some individuals declaring bankruptcy in these tough economic times may be unavoidable, keeping a clean driving record can go a long way toward keeping auto insurance premiums affordable.