What is a Tier System in Auto Insurance?

Auto insurance companies all over America have adopted a “tier system” of calculating the cost of car insurance.  The tier system used by today’s car insurance carriers is a new way of providing more accurate risk assessment data.  This helps underwriters set the right policy amount for each driver, or for each household.

In the past, a general surcharge was applied to the driver’s premium following almost any traffic mishap.  A single accident would increase your car insurance costs by a significant amount.  Nothing short of a crystal clear driving record would keep your auto insurance premiums to a minimum.

Factors affecting car insurance premium rates are primarily the same as they were before.  Accidents, DUIs, and moving violations will raise your rates.  Other deciding factors include vehicle type, zip code, and credit history, among other things.  However, with the tier system of calculating car insurance, one mistake on your record will not necessarily affect your premium.  With the tier system, policies don’t fluctuate as much as they did in the past, and even high-risk drivers can get standard car insurance policies.


How Does a Tier System Work?

The number of tiers that an auto insurance company may have is not set in stone.  Some carriers may have more tiered ratings than others.  Different insurance tiers may have different deductibles and different minimum liabilities.

Generally speaking, there are three tiers of auto insurance:  Preferred, Standard, and Substandard.  Preferred policy holders pay a lot less in car insurance premiums.  They have several years of driving experience and clean driving records.  They also drive low-risk vehicles.  Holders of substandard policies pay a lot more.  Yet, a substandard policy can be reclassified as a standard policy if the insured driver avoids accidents and moving violations for at least three years.  By the same measure, a preferred policy can be reclassified as a standard policy if the driver fails to maintain an exemplary driving record.

The standard category applies to people who have some incidents on their driving records and/or some credit issues, but who have not fallen below average in the pool of car insurance buyers. Standard drivers pay an average (usually affordable) amount on car insurance premiums.


What Are the Benefits of a Tier System?

Using the tier system gives auto insurance companies a greater set of options regarding individual customers.  The carrier uses a sophisticated rate table to calculate the risk for a particular driver, or for a particular household.  This helps consumers get the best deal on the market at any given time.

When shopping online for free quotes on car insurance, ask your insurance company representative how they can help you lower your car insurance costs over time, especially if you have been negatively affected by traffic related mishaps in the past.  By today’s standards, neither the cheapest nor the priciest auto insurance policy is necessarily the best.  The best premium package for you depends largely on your tier rating.

Ever since the state of New Jersey implemented a tiered rating system back in 1997, new state laws have gradually shifted insurance policies toward the new tiered rating system.  The tiered system is most beneficial to drivers with just a few mishaps on their driving records.  Insurers now consider more factors than just age, gender and marital status.  They also look at driving records, claims history, and number of years with the same employer, for instance. Call your local auto insurance carriers to find out if your state has adopted a tier system.

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