Say you’re considering a move, and you have the freedom to live pretty much anywhere in the US. You’ll probably think about things like job opportunities, the cost and standard of living, healthcare services, schools, crime rates, and climate. Is the cost of your insurance likely to be on your radar? Probably not.
Yet, your location absolutely impacts your rates — and, surprisingly, that’s actually true across all different types of coverage. Before you think that’s unfair, remember that insurers are in the business of making a profit, and thorough risk assessment is the only way to get there. Because where you live helps to predict how likely it is that you’ll need to cash in, these companies have to take that crucial factor into account.
- Auto Coverage
Your location influences your car insurance payments in several profound ways. While your driving record, age, sex, credit score, and other factors related to you personally are critical in helping companies determine your rates, they’re not the only things that matter. Let’s take a look.
- Your Zip Code
Insurers look at your zip code to get a better idea about crime rates, the expected number of auto thefts and vandalism incidents, and even the frequency with which accidents occur. This explains why — all else being equal — you’d pay less when you live in a safe rural area with very little traffic compared to a bustling urban environment.
The weather also impacts how much you’ll pay because areas with a higher frequency of extreme weather events (like hurricanes, blizzards, hailstorms, and so on) leave your vehicle vulnerable to damage that your coverage will have to pay out for.
The precise things that have to be covered under different types of policies vary from state to state, explaining why your payments may be more expensive in some places.
- Home Policies
Few people will be surprised that the same principles are at work when it comes to home coverage. After all, in contrast to your car, your property is closely connected to its location! Here’s why that matters.
- Climate and Geology
Your region determines which acts of nature are most likely to damage your property. If wildfires, earthquakes, hurricanes, heavy floods, or other disasters are a significant risk where you live, you can bet that this impacts your payments.
- Fire Services
Believe it or not, underwriters take your home’s proximity to your local fire department and their expected response times into account as they assess how likely you are to make a claim. Well, there’s something else to add to your checklist if you’re thinking about moving!
Of course, the rate of crimes that specifically influence your odds of making a claim also factor into your premiums. These include burglaries, acts of vandalism, arson rates, and so on.
- Health Coverage
When it comes to location-based factors, the cost of health policies is primarily affected by two things — your state’s regulations and the actual cost of healthcare where you live. However, don’t be surprised if you hear that insurers also look at regional differences in the risks of certain health problems. Even issues like pollution can increase your chances of particular diseases, and it’s possible that companies take this into account. (Although whether they’re allowed to varies from one jurisdiction to the next.)
- Life Insurance
Life policies can be very costly for issuers. You already know that policyholders have to meet eligibility criteria to qualify at all — you cannot, for example, take out such coverage if you have been diagnosed with a terminal illness or if you are elderly.
Beyond assessing individual risks, insurers also look at regional vulnerabilities. Let’s take a look at the circumstances that may lead to higher payments.
- Overall Mortality
To put it bluntly, it makes complete sense to keep a close eye on the statistical likelihood that people will die prematurely from a business perspective. Achieving this goal may involve tracking the average age, rates of diseases, lifestyle habits, and access to healthcare.
- Occupational Hazards
Occupational risks only apply to the people carrying out the professions in question, but providers may take regional differences into account. For example, areas where large numbers of people have risky jobs, such as mining and logging, may have higher rates.
- Why Does It Work This Way?
Let’s ignore the fact that certain kinds of policies are mandatory for a second. As a policyholder, you primarily choose to protect yourself because you know that paying monthly premiums is less painful than paying a large sum of money if unforeseen circumstances throw your life off course. Indeed, it’s quite possible that you could never come up with the costs on your own.
Providers, who have to make a profit, engage in a similar cost-benefit analysis, except with far more resources at their disposal. The system works because it pools risks. Most people will never make a claim, and when they do, they may not require a large amount.
In areas where claims are more likely, issuers have to drive up costs to be able to sustain their businesses. This way, policyholders can benefit from a much-needed safety net that wouldn’t exist if companies couldn’t make a profit.
To put it differently, while the fact that your state, county, and neighborhood play a role in the cost of the types of coverage you depend on may at first glance seem unfair, it does make sense when you think about it.
- A Final Word
So, what should you do with this information? Realistically speaking, most people would never move solely because they think they can save on their monthly premiums — but if you’re considering a move anyway, and your options are wide open, the way insurers look at risk does provide an interesting perspective.
If you discover that payments are particularly high, on average, in a region, that indicates risk. Depending on the policy, those hazards may include high crime rates, high rates of illness and premature death, or a significant incidence of natural disasters. Since we’re generally a risk-avoidant species, that kind of info could help you make decisions.