May 12, 2011

Recent Changes In Car Insurance Law That May Affect Premiums

Car insurance premiums have been rising steadily for a while now, due to inflation, the economic crises and several other factors. Insurance premiums are rising for all types of insurance, but while people can choose to go without home, life or health insurance, auto insurance is required by law. Car Insurance law is dictated by state to state, and varies slightly, but, for the most part has remained steady. However, there have been many attempts to change different aspects of the law, and for the most part these proposed changes will increase premiums.

Most insurance companies operate on a 60/40 ratio; which means that they pay out 60 cents on every dollar invested. The other forty cents is spent on overhead and other costs. Due to this system, auto insurance companies have always made a profit on a yearly basis, due to investing and shrewd 'betting' with the premium money. Many people believe that 40 cents is too much for 'overhead' and are seeking to change the minimum requirements in this regard. Several bills have passed concerning health insurance in a few states, and there are talks of this spreading to auto insurance as well. While this may increase the amount of coverage that you receive, this will cause insurance companies to drive up premiums to counter their losses.

The minimum insurance requirements in many states were referred to as 15/30/5 which is (in thousands of dollars) the minimum coverage for bodily injury, for more than one person and property damage respectively. These requirements were drawn up in many states around 30 or more years ago and have not been adjusted for inflation. As such, many states have increased the minimum, while others are attempting to make this change. Texas is a state which implemented such a change early in this year; to 30/60/25. Pennsylvania, along with several other states is also debating changing this car insurance law. However, this may not impact car insurance premiums as badly as would be expected; experts predict an increase of only 2-3%.

The reality is that insurance laws are mostly up to the state to dictate, which means so many different laws. One or two new laws, while they do give insurance companies an excuse to raise premiums, will not impact most drivers on the level that some people predict. The biggest expense from these increased minimum requirements could stem from fines (up to $200) for not having adequate insurance due to the fact that you didn't change your policy in time. New laws could decrease premiums, as the Government may intervene to lower the insurance burden. The best thing to do is stay current on changing laws and plan accordingly.