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UPDATED: Dec 18, 2018
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Applying for auto insurance is an involved process. You can’t just tell the insurer how much insurance you want and expect the insurer to comply by handing over a deposit.
Instead, before an insurance company will extend an offer for coverage to any prospective policyholder they’ll expect that person to answer a long list of application questions.
The answers to these questions, while they might not always seem relevant, are extremely important to companies who offer a large amount of financial protection in exchange for a small premium.
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How does the car insurance application process work?
The application process always starts with a quote. Once you’ve solicited quotes, provided the necessary information and then compared pricing, the next step in the process would be to proceed with an application.
When you fill out your application, you’ll be asked for even more detailed information than you’re required to provide while you’re just getting estimates.
Once the application is submitted to the company, it will be reviewed by a team of professionals called underwriters.
Underwriters review the information that’s been provided on the application to be sure that there are not any errors and that the named insured was upfront and honest.
It’s the underwriter’s job to assess risk and to decide which applications to issue as quotes, which to issue with higher premiums, and which to cancel.
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How long does it take for applications to be reviewed?
Insurance carriers aren’t free to just review your application at any time during the term to decide if it’s necessary to adjust premiums.
Instead, the companies are given a specified time frame where they can underwrite an application and take action.
If a company doesn’t take action during the limited time frame, they must wait until the renewal to change rates or order cancellation.
Knowing your consumer rights is critical when buying a financial product like insurance. In most cases, companies have a 30 to 60-day binding period where they can review the application and make a decision other than taking on the risk.
You as a client are free to cancel your policy at any time, but insurers can’t.
Some of the actions companies can take include:
- Rate surcharges or revisions when policy is issued
- Cancellation notice that includes a future date and reason for termination
Why are application questions so important?
Application questions are completely tied to premiums.
To stay in business, auto insurance carriers need to hire actuaries who do a great deal of research to identify risks, target market segments, and to project how many claims will be filed throughout the year.
Since insurance is a risk pool of thousands of people who share risk, it is at the forefront as policies are being issued.
People who’re more likely to use money from the pool are going to put more money in.
Companies can’t reasonably charge a household the right amount of money to cover the risk if they don’t have a view of the big picture.
To get this view, the company will ask those application questions that all potential insureds must answer.
The application is the closest thing a company has to following around a driver to see how they drive, where they drive, and if they’re responsible.
What happens if insurance companies don’t underwrite properly?
To really know how important application questions are to insurers and even to yourself, you’ll need to know what can happen if insurers aren’t diligent in developing and underwriting applications.
The biggest consequence of failing to underwrite and assess risk is that the company will be obligated to pay more out in claims settlements than they projected.
This can take a financially stable company to one that is unstable and at risk of going insolvent.
Some other consequences of poor underwriting methods include:
- Attempts to deny claims that may have otherwise been covered
- Delays in the claims process
- Large rate increases at renewal
- Bailouts and company closure
- Consumers may have to search for coverage due to company closure
What You Can Expect to Be Asked on an Application
You don’t really know what types of questions you’ll need to be prepared to answer until you start to fill out your first personal auto insurance application.
Not all applications are the same, but the most of the questions that are asked are pretty common industry wide with the largest writers in the marketplace.
Here’s a list that can help you gather information that you’ll need to get accurate quotes:
- Registered owners name, date of birth, marital status, driver’s license number(s)
- Home address where mail is to be sent
- Vehicle garaging address where vehicle is primarily stored
- Household drivers names, date of birth, license number, years of experience
- Vehicle year, make, model, license number, VIN number, odometer reading
- Annual mileage for each vehicle listed on the policy
- Distance of commute each way
- How long have you had continuous car insurance? Policy number and carrier name
- Accidents within the past 5 years? At-fault or non-fault? Injuries?
- Convictions for minor or major traffic infractions in the last 7 years?
- Driver license suspensions or revocations?
- Occupation and professional affiliations?
- Coverage types and limits requested
- Have you taken driver education training or mature driver training courses?
- Has a full-time student in the home earned a GPA of 3.0 or higher?
- Does anyone have regular access to the cars outside of the home?
Should you also have questions as a consumer?
The insurance company shouldn’t be the only one asking the questions when it comes to who they’re entering into a contract with.
Since your entire financial future is dependent on how your insurer handles a claim that you file, it’s important that you also ask questions so that you can choose the right carrier to trust.
Without doing your homework, you could pay a carrier that’s responsible for doing bad faith insurance practices.
Not all companies are created equally, but this is especially true in the insurance industry where there’s a lot of competition.
This is why you’ll need to qualify companies just like they’re being interviewed for a job before you put price above everything
Questions You Should Ask Before Buying Auto Insurance
The data that you can use to qualify an insurer is generally public information since auto insurance companies trade as public companies.
Before you even start to ask about price, you should ask about what separates one brand from another. You want to feel comfortable when you contact an insurer and still enjoy the convenience that you need in today’s modern world.
Here’s a list of the questions that you should be considering:
Is the company financially stable?
You buy auto insurance for financial protection. If you buy coverage from a provider that isn’t financially sound, you’ll be feeling a false sense of security as soon as that company decides to deny your claims.
You can check a company’s financial ratings through independent agencies like AM Best and Moody’s to see just what financial reports say.
– How can the insurance company be contacted?
Smaller companies may not offer a variety of contact methods. Consider how you prefer to do business and see if that’s an option with the company.
Some options include agent’s offices, district offices, online, email and by phone.
What are the claims and customer satisfaction ratings?
You can check satisfaction ratings and complaints through the NAIC. If you notice trends in complaints or reviews where clients are dissatisfied, you should consider a company that strives to keep customers happy.
If you’re ready to find an affordable car insurance policy, now is the time to start pricing policies.
It’s best to be prepared to answer all of the applicable questions before you get quotes to avoid misquotes.
Once you have the details, you can enter them in an auto insurance comparison tool online. Then, you will be directed to instant quotes where you can research companies and then look at the rates the best companies charge.