What is a preferred risk driver?

Car insurance is such a competitive industry and many companies offering coverage are continually looking for new ways to attract customers.

One of the more recent developments is that of the preferred risk driver. Preferred risk drivers tend to get better rates and are eligible for more auto insurance discounts.

Suffice it to say, if you are the opposite of a preferred risk driver you will pay higher rates and get fewer discounts.

Before we discuss the preferred risk driver, we must first define the term “risk” as it relates to car insurance so you can understand why one driver would be preferred over another.

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What is risk when it comes to car insurance?

In terms of car insurance, risk is defined as the relationship between how much a company will receive in premium payments opposed to how much it might pay out in claims. Companies try to mitigate the risk as much as possible with a delicate balance that both they and their customers can live with.

They also mitigate some of that risk by investing their customer’s premiums in various forms of securities, in the hope that the return from those securities exceeds the total amount of money they might have to pay out.

As long as a company’s investment returns exceed their claim payouts, they remain in good financial standing. However, if they come close to breaking even or, even worse, sustaining losses, it’s a very slippery slope to their eventual collapse.

That’s why car insurance companies are constantly evaluating premiums, claims, and the other factors that go into determining whether the business will be successful. You, as their customer, factor into the risk equation along with all of the other drivers your insurance company covers.

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Is my driving record linked to the amount of risk I pose?

Your history as a driver directly affects the risk you pose in the eyes of your car insurance company. If you have a history of speeding tickets you are probably not reliable in terms of driving safely at all times. Your reputation for recklessness means there is a greater likelihood you will have accidents resulting in a claim.

Therefore, you add risk to the insurance company and they add dollars to your premiums.

Accidents that result in claims also add to risk as well. An individual prone to numerous accidents is one whom the insurance company cannot trust to drive safely. Similar to speeding tickets, that lack of trust equates to a higher risk and higher premiums.

Furthermore, in the 12 states classified as “no-fault,” accidents tend to have more bearing on car insurance rates than in no-fault states. This is because each auto insurance company is responsible to cover their customers regardless of who is to blame for an accident.

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Are preferred risk drivers the ones with the better driving records?

Knowing what we now know, we can explain that preferred risk drivers are those with better driving histories. However, before we jump to conclusions, this doesn’t include 18-year-old students who have only driven for one year.

In addition to having a relatively clean driving record, you must also have a certain number of years experience before you’re considered a preferred risk driver. The number of years will differ from one insurance company to the next, but as a rule, it will be a minimum of 3 to 5 years.

What insurance companies are looking for in classifying you as a preferred risk driver is several years of continual driving without any accidents or violations.

If you fall under that category, the amount of premiums you have paid will likely have allowed your insurance company to reap returns on investments that far exceed the value of your car.

If you were to have an accident sometime after that point, they will have already made their money, and then some. As a reward, they might reduce your premiums in the future.

How much lower are auto insurance rates for preferred risk drivers?

While it’s not possible to provide any hard numbers concerning how much preferred risk drivers will save, we can say that it’s nothing to laugh about. Several nationally known auto insurance companies offer safe driver discounts and annual bonuses for having no accidents.

As an example, let’s say the safe driver discount was 5 percent and the accident free bonus was $100. For a 45-year-old male paying $1000 annually, that would be a savings of $150.

If that 45-year-old driver were to remain accident and violation-free until age 65, that $150 would turn into $3,000 over that 20-year period. That’s enough to:

• Take a decent vacation
• Buy your spouse the diamond ring you always promised her
• Put towards a college education for your grandchild

It’s a significant amount of money just for driving safely, wouldn’t you agree?

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How do I know if my insurance company has a preferred risk driver program?

If you’re not sure if your car insurance company rewards preferred risk drivers, all you need to do is call and ask. If they do, find out:

• What their criteria are
• How much you can save
• Where you stand in relation to their policies

That will help you understand what you need to do in order to qualify as a preferred risk driver. If your company doesn’t have such a program, you are always free to shop around for one that does.

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Related posts:

1. Who is a good driver?
2. How much can I save with a good driver discount?
3. Which auto insurance companies provide high-risk insurance?
4. How do I add a family member as an additional driver to my auto insurance policy?

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