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Why Insurance Companies Charge Different Rates for the Same Coverage

If you take the time to comparison shop for car insurance, you'll quickly realize how insane this industry is.

The price difference for the same coverage can be huge. We're talking price differences of up to $5,000 per year!

How is it possible for different auto insurance companies to charge such different rates?

The answer lies in the way each one calculates risk. There are hundreds of factors used by car insurance companies to determine what your risk profile is and how much they should charge you.

For example, one insurance company may have a large number of claims from Honda Accord owners within a certain geographical area.

This may just be a statistical anomaly, but if you happen to own a Honda Accord in this area they will quote you a high rate based on their claims history.

The same insurance company may offer low rates Toyota Camry owners if they show a lower incidence of claims in that area. As you can see, the same insurance company can give you a terrible rate or a great rate depending on one individual factor.

Now realize that there are many different factors used to calculate premiums. Your goal is to find an insurance company that has a good history with people similar to you.

Real Life Example

We checked car insurance rates for a 25 year old male with one traffic ticket on his record. He lives in Los Angeles and drives a Honda Accord.

Here are the annual premiums charged by different insurance companies for standard coverage. They range from $1,451 to $5,702 - a price difference of over $4,000 for the exact same coverage!

Insurance CompanyAnnual Premium
Horace Mann$1973
Access General$2072
Amica Mutual$2300
Workmen's Auto$2313
Western General$2636
California Capital$2644
CSE Safeguard$2768
Unitrin Direct$2783
Commerce West$2830
California Casualty$2946
Coast National$2949
Metropolitan Direct$2976
Alliance United$3119
State Farm$3162
Financial Indemnity$3382
Pacific Specialty$3613
Permanent General$3659
Anchor General$3739
Progressive West$4058
Liberty Mutual$4498
Fireman's Fund$4680
Victoria Fire$4745
GMAC/Integon Preferred$5691
21st Century$5702

3 Steps Every Car Buyer Needs to Take to Save Maximum Money

The key to getting the best deal is to gather price or lease bids from as many local dealers as possible. Then shop that best price around until no one can beat it. Here are the steps:

Step 1 Get Prices From My Trusted Network

Select the vehicle you're interested in to see if there are local dealers in my network who will provide you with their best upfront price. You will get direct access to an internet sales manager who you can further negotiate with online (no need to visit dealership).
Select Vehicle to Get Local Pricing

Step 2 Get Prices From TrueCar / CarsDirect

TrueCar, and CarsDirect are my top 2 online price quote recommendations. These services show you pre-negotiated prices from dealers closest to you - and the deals are usually pretty decent. But remember, you can still negotiate further.

Step 3 Complete my Checklist

Follow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan

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About The Author

Gregg Fidan Gregg Fidan is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.
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