July 3, 2011

Why Car Insurance Companies Offer Discounts To Some Customers

Auto insurance discounts are extremely common, so much so that several websites exist specifically to catalog the various discounts offered by different car insurance companies. Insurance agents often use discounts as a tool to attract new customers, and some providers automatically apply discounts to their existing customers' policies from time to time. Some discounts can seem arbitrary or extraordinarily specific. Many drivers wonder why car insurance providers offer so many discounts and why they're offered so freely to particular types of drivers.

Insurance companies actually want to offer discounts to their customers for several reasons. First of all, discounts help with customer retention. They're also given exclusively to customers who save the insurance company money in some way. In most cases, this means that the driver has better-than-average risk factors. Good driver discounts are an obvious example. These special discounts are only issued to drivers who keep an accident and ticket-free record. Insurance discounts for homeowners, parents and other select groups are also intended to reward these relatively low-risk groups. Homeowners are significantly less likely to be involved in a costly accident, so their insurance rates are lower on average. Other discounts are given to customers who save insurance companies money by buying policies online or by using certain payment methods.

Of course, some insurance discounts are used exclusively as tools to keep customers from switching to another insurance provider. Many insurance companies offer automatic discounts to customers who have had open policies for more than several years. These customer loyalty discounts are controversial, as they seem to limit drivers' choices, and some states have actually banned customer loyalty auto insurance discounts. Insurance companies have responded with "steady coverage" discounts, which lower a driver's rates when he or she hasn't had a gap in coverage, regardless of which company the driver used to stay insured.

In a way, auto insurance discounts are mutually beneficial. They provider drivers with lower rates and help insurance companies to accurately price their policies given the relative risks of different groups of drivers. There are dozens of possible discounts, and most drivers will be able to find at least one or two discounts that can take a few dollars off of the monthly cost of their policies. However, drivers should also recognize that discounts can be misleading. A hefty discount can seem like a good reason to stay with a particular insurance provider, but if that provider's competitors are all offering lower rates, the discounted premium isn't too valuable. By checking insurance quotes online, drivers can avoid bad deals and find out whether a certain insurance discount actually adds value to a policy.