It seems obvious that the more insurance you buy, the more it should cost, right? Not necessarily. Insurance companies have many different rating factors and limits are only a small factor in rating.
Can you believe people that carry minimum limits of auto liability on average pay more than people that carry high limits of insurance? This is because of 2 major components of insurance rating: competition and tiering.
Auto rating is based on many different factors, the most important being:
- The drivers listed, including their age, claim history, credit, and MVR.
- The vehicles listed.
- The coverage limits requested.
- Length of time with continuous insurance (including the time with the same carrier).
Therefore, someone with a decent driving record and a good credit score could pay more for minimum limits ($10,000 per person/$20,000 per accident) than they would for $100,000 per person/$300,000 per accident. This is because minimum limits will default someone to the “nonstandard” tier. However, if they chose higher limits they may be eligible for the “preferred” tier. More importantly, some companies don’t even quote lower limits, so instead of quoting your auto with 12 different auto carriers, we may only receive 4 quotes because the preferred carriers would decline to quote.
This not only happens in auto, it, also, occurs in home and business.
For home insurance, some companies will not insure homes below $100,000, $200,000 or even $300,000. Therefore, if you have a higher replacement cost value on your home, you have more companies that compete for the business, so you will likely get better rates. I should note that you cannot insure a home that is 1000 sq ft for $300,000 in hopes of getting a better rate. All companies use a replacement cost estimator to try and limit someone from being over- or under-insured.
As for business insurance, most companies have minimum premium requirements. These companies realize that the level of work in servicing a policy may be more than the premium taken, so they will often have a minimum premium of $400 or $500. So, if you are a low-risk business or small company, you may find out that a $100,000 policy and a $1,000,000 policy both cost $500 because the minimum premium is $500.