Risk is what you are transferring from yourself to your insurance company when you buy any type of insurance policy. Automobile policies primarily involve the risk of liability that is potentially incurred by damaging another person or their property. The more risk, or likelihood of a claim, the more premium associated with that risk. A driver with three at-fault accidents in the last three years, or even three “not-at-fault” accidents, is certainly a higher risk than a driver with a spotless claims and driving record.

Your goal as a consumer of auto insurance products is to minimize the amount of risk that you are seen to represent, and this is directly related to the “rating tier” (and therefore discount) that you will receive.

In other words, you want to start your policy at the highest possible tier, because this determines your base rate. Then you want to discount that base rate as much as possible, by ensuring that you qualify for and receive every possible discount that you can.

Tiering and rating factors vary from one company to another, and include such things as the obvious ones like age, credit history, and driving record. Not so obvious are factors like military status, occupation, prior insurance, and the duration of time you have been with a particular company. The number of factors used to “tier” a driver can be as few as ten with some of the major online carriers, to as many as several million with the “membership based” underwriters. (Those that require you to “join” them in order be become insured).

If you qualify for “membership” with one of these companies, you will over time most likely see your rates improve, even if only incrementally, because having more rating factors can mean more “discounts” for you. In general, if you are older and more established, with a stable job, insurance, and credit history, you will most likely be better off with a company that uses many factors. If you are younger and less established, you may be better off with a company that only uses a few, like the newer, “online-based” companies.

The key here is to recognize the point that you are no longer improving your “tier” with your company, because that is your cue to start shopping your coverage to a more “complicated” underwriter.

Your garaging address, for example, is a primary rating factor for risk ▪

Two adjacent zip codes, literally across the street from each other may be 10%, 20%, 30% or more different in price. Keep this in mind when you pick out your next home or apartment. If you are considering two or three properties to buy or rent, remember to quote your insurance from each zip code (if any difference) to see how much more or less each will cost you. A two-minute drive that saves you 30% on your auto insurance may be one of the best investments you ever make.

“Are there any other drivers in your household? Are they relatives or roommates? Would anyone else but you drive your vehicle?”

These questions are used to determine who, other than the “Primary Named Insured,” or PNI,* might possibly be driving the vehicles on the policy. Insurance companies definitely want to collect the premium dollars due for the 16 year-old in the household, especially if she might be driving her grandmother’s Cadillac. When allowed, most companies will require you to add or exclude all the other licensed drivers in your household, especially if they are related to you.

The most important concept to understand about those “other driver” questions is simply this;

In most every state, if there are other drivers in your household who are not related to you, and they have their own vehicle and insurance, then you are not required to cover them on your policy, even in the strictest “limited exclusion” state. This is not an issue in states that allow a flat driver exclusion,* since most likely you will want high risk drivers off of your policy (and out of your drivers’ seat) anyway, and what better excuse for that than “sorry, my insurance won’t cover you.”

This one crucial factor may be the most important to you when tiering your policy for the risk you represent: If a driver does not need or want to be on your policy, exclude them if exclusions are available in your state. You may be charged a fee for doing so, usually not more than $ 25, no matter how many drivers in your household that you will be excluding. If they are actually not going to be driving your vehicle, obviously you do not want to pay premium as if they were, so the key here is to exclude them.

This gets tricky in some states, though, (New York and New Jersey, for example) where exclusions, especially for spouses, are simply not allowed. Again, if the other drivers have their own vehicles and insurance, and do not drive your vehicle, (or have never been licensed in any state), and you can provide “verification”* of these facts, you can avoid having unwanted drivers added to your policy in the first place. This may apply even in the stricter limited exclusion states.

Be sure to ask if exclusions are available if you are always being told that “you have to insure all the drivers in the household on your policy, even if they don’t drive your car.” Agents will tell you this to avoid writing the policy with the exclusions, for fear that you will be allowing the drivers to operate the vehicle anyway, and they will be subjecting their company to uncompensated “risk.”