If you’re dealing with car insurance, you may have encountered the term “tier system.” But what is it, and how does it work?
In a nutshell, the car insurance tier system is one way car insurance companies evaluate risk. Your “risk” is the likelihood that you’ll file a claim, and the higher the risk, the more expensive your premiums will be. Several factors play into your assessed risk, so we’ve created this comprehensive guide with helpful information about the car insurance tier system.
When searching for the right car insurance policy, it’s also essential to understand the differences between providers. Our experts have carefully examined major insurance providers to determine the best car insurance deals today. Enter your zip code below to receive free car insurance quotes from providers in your area.
What is a Car Insurance Tier System?
Car insurance companies use a car insurance tier system to group drivers by risk and determine their car insurance rates. The system is also known as a rating tier or insurance score. Your auto insurance company will consider different factors to assign you a risk score. They’ll then use this number to place you in a specific tier.
Here are a few details of the scoring system:
- The range is 200 to 997.
- The lower your score, the higher risk you are as a driver.
- A score of 800 or above means you are considered a low-risk driver.
- The median score in the U.S. is about 770.
The tier system departs from systems previously used, where all policyholders receive a standard rate. It also eliminates surcharges and replaces them with risk ratings. Insurance providers can be more precise in their rate calculations with the tier system.
With this system, safe drivers can also get cheaper rates than they would have under the old system. Added to that, one accident will not necessarily raise your policy’s premiums. However, some insurance providers use different tiers, which means this system is not universal in the industry.
The Different Car Insurance Tiers
There are three car insurance tiers: Preferred, Standard and Non-Standard. Here is a more detailed look at each:
Preferred Tier
The preferred tier is the lowest risk and receives better car insurance rates than most. To qualify for this tier, you must have:
- A clean driving record (no accidents or traffic violations)
- An excellent credit score
- No coverage lapses
- A low number of claims
Some insurance companies may also consider age, even barring drivers aged 25 and under from this tier due to a higher probability of unsafe driving behavior.
Standard Tier
The standard tier is for drivers with some blemishes on their driving history, or those who have had a lapse in coverage. To qualify, you must still have:
- An average credit score
- Insurance coverage over the last six months
- Just a few minor traffic violations
Drivers who fall in this tier typically receive good rates.
Non-Standard Tier
The non-standard tier is for drivers with:
- Several accidents or traffic violations
- Significant lapses in coverage
- A below-average or very low credit score
- No previous insurance coverage
Drivers in this tier typically pay the highest rates because they present the highest risk.
Factors Car Companies Use to Determine Rates
Now that you know how the system works, you’re probably wondering what factors determine car insurance rates. Here are some common ones:
Age
In general, younger drivers are classified as a higher risk than older drivers, and thus, they end up paying higher rates. The two primary reasons for this are:
- Studies from the Center for Disease Control (CDC) indicate a higher chance of younger drivers practicing unsafe driving habits and getting involved in accidents.
- Younger drivers often lack the experience and skills to navigate difficult driving conditions safely.
Because of this, car insurance companies charge higher rates for young drivers to offset the increased risk.
Driving History
Insurance companies view a clean driving record as evidence that you’re a safe driver. Safe drivers aren’t likely to get into car accidents and make claims on their policies. Thus, they pose less risk to the insurance company, which is reason enough to be charged lower rates.
You’re more likely to have higher insurance premiums if you’ve had any of the following in the past several years:
- Multiple speeding tickets
- DUIs
- At-fault accidents
- A suspended license
- Other traffic violations
The Type of Car You Drive
Insurance companies assess the make and model of a motor vehicle to determine its risk level, which is used to set premiums. Ultimately, the type of car you drive is one factor insurance companies consider when setting insurance rates. It can have substantial ramifications on your premium.
High-Risk Vehicles
In general, luxury and sports cars are considered high risk because they are more expensive to repair and replace. They also tend to be involved in more accidents than other vehicles. Because of this, drivers of these types of cars can expect to have high insurance costs.
Low-Risk Vehicles
Family cars and sedans are typically seen as low risk and usually have lower insurance premiums.
Your Credit Score
According to the Insurance Information Institute (III), people with higher credit scores are less likely to file claims, so insurers see them as less of a risk. Insurance providers typically offer lower rates to customers with good credit.
Location
Urban areas are generally more expensive to insure than rural areas for several reasons:
- There are often more insurance claims for accidents in urban areas
- The areas often have higher rates of theft and vandalism
- More populated cities have heavier traffic on the roads
By studying the crime, claim and traffic rates of specific locations, insurers can offer drivers a more accurate rate that reflects the risks associated with driving in those places.
Gender
According to the World Health Organization (WHO), males under the age of 25 are more likely to get into car accidents than females the same age. They are also more likely to get speeding tickets and other traffic violations. As a result, insurers typically charge higher rates for male drivers.
Ways to Improve Your Rating Tier
If you’re classified as a high-risk driver, there are things you can do to improve your rating and get into a lower tier. Here are a few tips:
Maintain a Clean Driving Record
If you have an immaculate driving record, you’re likely to be in a lower-risk tier and you will have a cheaper insurance bracket. Conversely, if you have speeding tickets or accidents on your record, you’ll probably be paying more for car insurance.
Keep Your Credit Score High
Insurers often use a driver’s credit history to help determine their premium, and a high score can result in lower rates. You can take a few simple steps to improve your credit score, including paying bills before they’re due and keeping your debt levels low.
Keep Insurance Coverage
Those insured for a longer period are typically seen as less of a risk and often receive more favorable rates. Another way to improve your rating tier is to avoid lapses in coverage. Even if you are not driving your car, it is essential to maintain insurance coverage.
If you let your policy lapse, you can be seen as a high-risk driver, which leads to higher premiums. By taking steps to maintain continuous coverage, you can improve your insurance rating tier.
Tips for Landing Cheap Car Insurance
While there is no single factor that will guarantee cheap car insurance, there are a few tips to help reduce your rates.
Shop Around and Compare Rates
One critical thing you can do when shopping for car insurance is to compare rates from different insurers. Keep these tips in mind when comparing rates.
- See the differences between coverage levels and deductibles. If one provider has a higher deductible for the same amount of coverage than another provider, then you know which company will save you more money in an accident.
- Ask about discounts. Many insurers offer discounts for good driving records and installing safety devices in your car, among others.
- Remember that the most affordable policy is not always the best policy. Pay attention to the fine print before buying an auto insurance policy to ensure that it meets your specific needs.
Boost Your Deductible
Your deductible is one of the most critical factors in determining your insurance rates. Your deductible is money you must pay out of pocket before your insurance company begins paying for any damages.
By raising your deductible, you essentially agree to shoulder more of the financial responsibility in the event of an accident. This can be risky, but it can also lead to significant savings on your monthly premiums. Of course, make sure you are liquid enough to cover your deductible in the event of an accident.
Reconsider Your Current Coverage
Most people purchase more coverage than they need, which can lead to higher premiums. For example, you may not need comprehensive or collision coverage if you have an older car. Instead, you could opt for liability insurance, which will protect you financially if you’re at fault in an accident.
Our Recommendations for Auto Insurance
Car insurance is a critical component of being a driver. However, it can be difficult to find the right policy. To help you find the best coverage for your needs and budget, you can consult a comparison tool and look at multiple car insurance quotes from different insurers.
To help you choose, here is some valuable information about three dependable providers: GEICO, Progressive and USAA.
GEICO: Best Overall
Aside from a rating of 9.1 in our comprehensive insurance provider review, GEICO is also known for providing clients with extra roadside assistance, mechanical breakdown insurance, rideshare coverage and other special benefits on top of numerous discounts.
Some of the discounts GEICO offers include:
- Good student
- Emergency deployment
- Federal employee
- Membership and employee
Progressive: Best for High-Risk Drivers
Progressive also earned an overall rating of 9.1 out of 10. This company’s high standing is built on the strength of its industry reputation, coverage, cost and customer experience. Progressive known to offer cheaper insurance for drivers who have recent at-fault accidents, speeding tickets and DUIs.
Progressive also offers clients discounts such as:
- Sign online
- Paperless
- Pay-in-full
- Automatic payment
Read more: Progressive insurance review
State Farm: Best for Student Drivers
State Farm earned an overall score of 9.1 out of 10 in our review. It gained excellent scores for its wide variety of coverage, its record of excellent customer service and its savings opportunities for young drivers. State Farm’s Steer Clear® usage-based program can help drivers under 25 get a discounted rate on their premiums, for example.
This company also offers the following discounts and more:
- Good student
- Student-away-at-school
- Anti-theft
- Passive restraint
FAQ: Car Insurance Tier System
What is a tiered car insurance policy?
A tiered car insurance policy means that one accident will not immediately raise a driver’s individual or household policy. This is because insurers are using more defined metrics to understand the risks associated with each driver.
What are the benefits of a tiered car insurance policy?
There are several benefits to having a tiered car insurance policy:
- It can keep rates more affordable for drivers with accidents on their record.
- It can be helpful for drivers who live in areas with high rates of accidents.
- It can give insurers a more accurate way to assess risk.
How can you improve your tier rating?
There are numerous items you can tick off to improve your tier rating. You can take and complete a defensive driving program, ensure you have up-to-date car insurance coverage and avoid accidents and traffic violations.
What are the tiers of car insurance?
The three tiers of car insurance are:
- Preferred Tier: Drivers in this tier are considered low risk by insurers because of clean driving records and excellent credit scores.
- Standard Tier: Drivers in this tier are considered medium risk by insurers because of average credit scores and a few minor traffic violations.
- Non-Standard Tier: Drivers in this tier are considered high risk because of heavy traffic violations, below-average credit scores or significant lapses in coverage.
What are the three types of car insurance?
The three main types of car insurance that make up a full-coverage policy are:
- Liability: Only covers the property damages and bodily injuries of the other party in an accident you are legally at fault for.
- Collision: Covers damages to your vehicle in a car accident, regardless of who is at fault.
- Comprehensive: Covers damages to your vehicle that are caused by environmental factors, such as severe weather, theft and vandalism.
Our Methodology
The Detroit Bureau collects data from every major car insurance provider to formulate rankings of the best insurers. Our in-depth rating system takes into account market share, coverage, auto insurance rate estimates generated by Quadrant Information Services, customer satisfaction, and ratings from industry experts. Each insurer is given a weighted score in four categories, as well as an overall score out of 10.0.
We recommend auto insurance companies based on these rankings, but we also encourage you to perform your own research and compare quotes to find the best coverage.
Sources:
https://www.caranddriver.com/car-insurance/a36133190/car-insurance-rating-tiers/
https://www.carinsurancecomparison.com/car-insurance-tier-system/
