“Why is the Insurance Company so darned nosey? It’s None of their business!”

Here’s something about car insurance that we have to explain a lot. And rightfully so, because it can be quite confusing to the average consumer.

Here’s the question…”Why do you want to know about the other people living with me?” They don’t drive my car.” The answer to that question takes us to some core concepts about insurance that everyone needs to understand. It’s simple-it’s all about analyzing RISK!

Though the details are complex, at its foundation insurance is quite simple. Your policy is a contract with the insurance company. The company assumes the risk of paying your covered claims in exchange for your premium-the price of your insurance. What is and isn’t covered is the complex part, but the principle is very simple.

The risk to the company is enormous…tens or hundreds of thousands, even millions, of dollars! So, before they take on such risk by selling you a policy, they analyze your “risk of loss”. They ask, “What’s the chance you’ll have a claim as compared to the general population?” And they continue to analyze your risk of loss as your actual claims experience and life circumstances change.

If your risk is comparatively low, you pay a lower price. If you risk is comparatively high, you pay a higher price. And in some cases-or with some companies-you may not be able to get insurance at all, because your risk is too great.

Enter the Other Household Members

Other household members are simply people who live with you. Usually they’re family members, but they can also be unrelated, like roommates.

Like it or not, these people represent potential additional risk to the insurance company. Statistically speaking you can’t argue with that statement… And that’s what insurance companies work with…statistics.

For example, compare two groups of 100,000 people. Each group is exactly the same in every way…The same car, the same distance to work, the same age, the same driving experience, etc. The only difference is the members of the first group live alone, while the members of the second group each have a licensed roommate.

It’s a statistically proven fact that the members of the second group will have more claims than the first group, just because they have a roommate. Why? Because the roommate is more likely to drive the insured car than that of a non –roommate.

No matter how much you insist that your roommate-or brother, parent, child, whomever-does not drive your car, the insurance company, frankly, isn’t listening. They primarily base their decisions on statistical analysis. After all, everybody says their roommate doesn’t drive their car, but the statistics prove otherwise. Therefore, the company wants to know about your other household members, so they can analyze the risk those people represent. Remember, risk analysis is a core concept of insurance.

Higher Prices? Not Necessarily

Interestingly, each company treats other household members differently. The principles on which they analyze them, as I explained above, are the same, but how they handle their findings can be quite different.

What they do boils down to qualification, pricing or both.

For example, some companies analyze other household members only for qualification, but don’t charge for them. In this case, all household members must qualify the same as the applicant, because the company does not want the risk of any bad drivers in the household.

Other companies don’t really care about other household members as long as those members have their own car insurance. However, uninsured household drivers are considered as if they were the applicant. And the company charges additional premium for them.

Still other companies will allow you to voluntarily exclude a bad driver from your policy to avoid paying a higher premium. In this case your claims are not covered if the excluded driver gets behind the wheel of your car.

The Bottom Line

The bottom line is insurance companies analyze risk.  All household members increase risk, so the companies want to know about them.  And what a company does about a household member can be quite different from company to company.

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