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How Insurance Quotes Work

Posted : 05/18/2010

Whether it's car insurance, life insurance, health insurance or homeowners insurance, everyone who shops and compares quotes wonders why the price of insurance can be so different between companies for the same policy.

The answer is pretty simple. Price differences occur because every insurance company evaluates risk in its own, unique way. And when we say evaluating risk, we mean evaluating you.

So let's say, for example, you have a speeding ticket or two on your driving record. One car insurance company will consider you an O.K. risk. Hey, everyone gets a speeding ticket once or twice in their life. To another car insurance company, though, speeding tickets might raise a red flag.

End result? One quote will likely be lower than the other.

Okay, it's a bit more complicated - but not much

To better understand, let's explore how insurance works. Don't worry. The business model isn't all that complicated.

Essentially, every insurance company works the same way. Business success, or profit, is determined by the premiums we all pay plus the company's investment income minus business and underwriting expenses, which is everything from salaries, agent commissions, overhead expenses, office rental and supplies and more.

Underwriting, in insurance jargon, is simply the method insurers use to select risks (you, me, our driving habits, life expectancy, and so forth) they're comfortable insuring - and how much to charge for that risk.

It's this process that's the most complex. And it's this process that produces the quote - and final rate - you'll pay for car insurance, life insurance, health insurance and homeowner's insurance.

Three-step process

It helps to think of the quoting process in three simple steps.

  1. Input your information. It doesn't matter if it's for your car, your home, your life or your health, when you compare quotes, you want to compare apples-to-apples. You should provide the same personal information to each insurer, based on the type of insurance you're shopping for.
  2. Your information is evaluated. This is the underwriting process in action. These days, computer algorithms quantify risks by analyzing data - through statistics, probability and actuarial science - to predict what and how many claims a given risk will produce. Or how likely you are to crash your car, burn down your house, finally give up smoking or need a kidney transplant - and how much the insurance company will have to pay for that claim, or incurred loss.
  3. Receive your quotes. Each company will return a quote based on its underwriting process - or how it views you as a risk. Some companies will see you as less of a risk than others. This is why your quotes for the exact same policy vary in cost - and should be one of the reasons why you're shopping for insurance in the first place.

Shop, compare and save

By now you should see why it is so important to shop and compare insurance quotes, no matter what type of insurance you're looking for.

It is important because every insurance company evaluates your information differently. By shopping and comparing quotes, there's a good chance you'll find a low rate for the policy you want at a great company that caters to people just like you. And you'll rest assured that you're paying the best price for the policy you need.

It's easy at insurance.com. In 10 minutes or less you can compare multiple quotes from top-rated insurance companies and choose a policy that's right for you. Spend 30 minutes on insurance.com and you can compare car insurance quotes, life insurance quotes and health insurance quotes. It's one-stop insurance shopping at its best.

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