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HSFPP Weekly Update # 63—Impact of Driving Record& Credit Score on Car Insurance

MESSAGE FROM FLASHMAN: This first update of the new school year comes on a Thursday because I wanted Chris Hart, our sophomore work- study student, to have input on this weekly financial lesson before sending it out to you. Chris soon will be a former teenager, and he will be sad to see his teenage years go when he turns 20 on September 10. He says he is already feeling old! Some news to those of us who are much older!

Chris is able to make especially valuable contributions to the Kentucky High School Financial Planning Program because his high school years are still fairly fresh in his memory, and he has a very good idea of what teenagers know and don’t know about their finances. This makes a big difference to those of us whose high school years are far behind us.

Because of the Labor Day holiday on September 1, the next update goes out September 8. Each update thereafter will arrive on Monday, the day we usually send our e-mail lessons.

Web Site Pick of the Week:

Kentucky Department of Insurance Web site: http://www.doi.state.ky.us/kentucky/

This site includes a wealth of information on insurance, as well as an Interactive Get Smart Quiz (found under “Newsroom” on the main page).

Suggested Activity for Teachers:

When conducting this lesson, you might also want to use HSFPP Weekly Update # 30, on Credit Scoring, along with information about the impact that accidents and speeding violations have on how much teenagers will spend to insure their (or their parents’) vehicle. Also, many parents have no idea what really is taught in school these days, so this week’s lesson would be a good activity for parents and teenagers to work on together.

First, hand out this week’s article In the New$... for students to read and go over in class. The student activity is for their homework. Have students find information on what impact speeding and other traffic tickets would have on their auto insurance rates. Any student who doesn’t own a vehicle can use a parent’s car on which he or she is listed as a driver on the insurance policy.

How much is the student’s insurance policy compared with their parents’ policies? If the student is on a parent’s policy, how much did that policy go up?

Discuss the results in class. You might also want students to share what they learned from their parents. I am sure the discussion will be interesting. Students may find that youthful inexperience has a very real financial cost.

In the New$... States increasing traffic fines & the number of citations given

“States facing yawning budget gaps are finding new money by pinching speeders more frequently—and pinching them harder, too. Texas lawmakers recently added $30 to the fines for speeding tickets. California has added a surcharge of between $7 and $20, depending on the severity of the violation.

“The best advice is simply not to speed, at least not brazenly. But if you get nailed, fight it—because a $50 ticket can cost you thousands once your insurer gets wind of it.… Even one speeding ticket can begin to turn your name to mud in your insurer’s eyes. More than one can cost you thousands of dollars in higher premiums.”

”Insurance companies say punishing speeders is well warranted: In one study, California drivers with one speeding citation in a three-year period had a crash rate 50% higher, on average, than those with no infractions—and the crash rate more than doubled for those who had two or more tickets, according to the Insurance Institute for Highway Safety and the Highway Loss Data Institute, industry-sponsored research groups.”

“…A study of Ontario traffic statistics, published in the British medical journal, The Lancet, found that a conviction for a moving violation cut the risk of a fatal crash in the following month by 35%. The benefit evaporated by four months after the conviction. Assigning penalty points to a driver’s license—especially for speeding tickets—reduced the risk of fatal crashes more than convictions without penalty points.”

First, reduce your likelihood of getting snagged by the speed gun in these ways.

Past problems. Request your driving record from the Kentucky Department of Motor Vehicles. Is your record accurate? Did you go to a driver education program to wipe out a speeding ticket that still ended up on your driving record? Could you face a suspension hearing if you get convicted for one more violation? Call your insurer. Find out how a slip-up such as a DUI or another moving violation would affect your rates.

Penny-wise = pound foolish. Police frequently key in on a vehicle that has obvious problems such as broken headlights or a taped-over taillight. Spend $5 to replace a burned-out bulb and you may save hundreds of dollars later.

Plan, Plan, Plan Ahead. Stay in the right lane when possible. Passing cars in the left lane makes you stand out like a sore thumb. Always give yourself more time to drive to your destination so you can stay close to the posted speed limit. Even if you are late, don’t speed. It’s better to be late than to get a fat ticket or worse. Otherwise, you’ll spend all the more time in driving school and court to get rid of a speeding ticket.

Be a groupie: Stay with other vehicles. Truckers usually slow down when they know of a speed trap ahead, but that’s still no guarantee you will not get picked up. Still, there is some level of safety to be found in numbers, and not driving much faster or much slower than the cars around you will not only increase your physical safety, it also will decrease the chances that you will be pulled over.

Drive for space, not for speed. While it’s good to stay somewhat close to other vehicles, don’t get too close. Don’t tailgate cars, and especially don’t follow truckers closely because they have very large blind spots behind and right beside them on both sides. Trucks also can’t stop as quickly as cars. Be careful not to stay beside a vehicle, especially a truck, for too long because they may forget you’re there and sideswipe you. Try always to keep enough space in front of you—and also behind you—that you can safely slam on the brakes, if necessary. Be very much aware of all vehicles, pedestrians, and driving conditions around you.

The traffic stop and its aftermath

“You get pulled over anyway. Now what do you do?

*** Be polite. “Most of the time, the motorist has very little chance. The officer has already has made up his mind,” says Wolfberg, the former cop. “The only real chance the driver has is to be nice.” Act peeved and a trooper may give you the full fine. Some will also flag the citation with a notation, like “ND”—a note to a prosecutor or to himself (in some states, law- enforcement officers act as prosecutors in traffic court) to give a loudmouth “no deal” in court.

*** Don’t admit guilt. “The absolutely fatal question is, ‘Do you know why I stopped you?’” says attorney Mark Sutherland, co-author of the book Traffic Ticket Defense. Authorities can use any admission of guilt against you when you contest the ticket (see below).

*** Once home, don’t immediately pay the ticket. Simply paying the fine, an admission of guilt, could cost you dearly in insurance rates. Doubt it? Let’s say you’re an experienced driver in California with a single-car policy and a good driving record, who is paying the average rates statewide for liability, collision and comprehensive coverage, $765 annually. If you were a Prudential Financial customer you’d get a 25% good-driver discount and pay only $574. One speeding ticket would mean a roughly 27% increase from the base premium, says Prudential’s Laurita Warner—a $207 annual increase, or $621 more over three years. (Surcharges usually last for three years.)

“Get a second minor conviction and your premium would rise an additional 40%, and you’d also lose your good-driver discount, says Warner. Suddenly, a premium that was $574 has ballooned to $1,071. After the third conviction, expect to pay roughly 63% more than you originally did, or $1,247. Over three years you would end up paying $2,020 more than if you’d kept your nose clean, or much more than the fines themselves. Clearly, getting pinched leaves a painful scar.

“The pain can be even worse if you’re a teenager or young adult. ‘Getting even one speeding ticket, much less two, can cause a dramatic spike in your insurance rates—sometimes doubling and even tripling those rates—and jeopardize your ability to get preferred insurance rates,’ says Karl Newman, president of the Washington Insurance Council, a consumer education group funded by member insurance companies in Washington State. ‘That could require you to purchase high-risk insurance.’”

Source: Adapted from “It pays to avoid a ticket—or fight one,” by Chris Solomon, at the following Web site:

http://moneycentral.msn.com/content/Insurance/Insureyourcar/P51288.asp?Printer

Student Assignment:

How much would your car insurance rates increase with one conviction? How much would the rates increase with a second conviction? A third conviction? Is there a difference in the rate increase for a traffic ticket, rather than a speeding ticket? Is there a difference for a DUI? It could vary from insurance company and the county or area you live. So get the rates on your car and/or your parents’ car on which you are listed as a driver on the insurance policy. Discuss insurance rates with your parents. How does the fact that you drive that vehicle affect the amount of the policy?

Also, how does your credit rating or your parents’ credit rating affect insurance premiums? Be ready to discuss your findings in class.

Class Discussion Follow-up:

How do insurance companies’ rate increases compare?

Why might there be difference between the rate increases? (Model, color, and age of the vehicle are possible examples.)

Is there a difference between the rate increase for getting a traffic ticket, rather than a speeding ticket? How do the insurance companies compare on this?

How did the rate increase in Kentucky compare with rate increases from California in the In the New$... article? Does it cost more to insure a car in some states than others? If so, why do you think that is?

Kentucky High School Financial Planning Program

http://www.ca.uky.edu/fcs/hsfp

The purpose of this Web site is to assist county extension agents, credit union educators, and high school teachers in improving the economic well-being of our constituency, beginning with today’s students; and also, to assist teachers in Kentucky in meeting KERA’s goal that all students become technologically literate. Weekly Updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators.