UPDATED: Mar 13, 2020
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You’ve just gotten your new insurance policy and the price you were quoted doesn’t exactly match what you’re seeing on your bill, since it’s a bit higher than that initial quote. What’s going on here? So what are these extra charges you’re seeing, and why are they being charged?
In this case, we’re reminded of the famous words written by Benjamin Franklin, which we’ll paraphrase as “nothing is certain in life, except death and taxes.” There are two types of government fees that are normally levied on car insurance premiums: taxes and surcharges.
Let’s talk about the taxation portion first, since we’ve all lived with these fees our entire lives. Depending upon where you live, you may see multiple levels of taxation. States have varying laws and regulations, and it’s possible you could be taxed on the state level, the county level, the city level and by various municipal agencies. For example, it isn’t uncommon to have taxes charged in support of things such as your local police department or ambulance service. While they’re not called taxes, and theoretically, they’re not the same as taxes, you may also see surcharges. But despite the difference in terminology, surcharges are levied on insurance companies as a separate form of taxation, and often passed directly on to the policyholder.
Just as with taxes, surcharges vary from state to state, and in some cases, they are levied against policyholders as a form of punishment. From driving infractions slight and large, such as the loss of “points” on your driver’s license or being convicted of driving under the influence. The funds raised by those surcharges are then utilized for driver education, for law enforcement, to fund emergency services or other programs a state conducts.
While there isn’t much you can do about the taxes and surcharges that government specifies, short of moving to another state, it may be possible for you to completely avoid any of the fees that auto insurance companies may charge. And in most cases, getting around these fees aren’t that difficult to do.
There are a wide variety of fees that various insurers will charge, the largest of which are normally policy issue fees and renewal fees. Policy issue fees are charged to brand new policyholders, while renewal fees come at the end of one policy term and renewing the policy for a new term.
This is an area where it pays to shop around and get quotes from multiple insurers. Just like with credit cards, where some companies will charge annual fees while others don’t, not all car insurance companies charge these fees. And even if your insurer does charge these fees, there is nothing to stop you from asking that they either remove, reduce or waive these fees. If you’re a policyholder in good standing, with a good driving record and claims history, point this out to the insurer. If your current insurer won’t do this, make sure to give others the chance to do so. Not only may you be able to save on these unnecessary fees, but you may also save money on your car insurance premium as well.
There are also fees that you can influence based on payment options. Almost every single car insurance company will offer options on how you pay for your policy. If you pay your policy in full upfront, you shouldn’t have any payment fee added to the cost of your insurance premium. But if you’re paying over a six month period, you’ll probably have to pay a small maintenance fee in order to do so. These fees are normally just a couple of dollars added to each bill. And for those who cannot pay the entire amount of their policy upfront, the convenience of being able to spread the cost of the policy out is probably a valuable service well worth the cost.
Finally, there are a couple of fees that you definitely should avoid if at all possible: late fees and returned payment fees. Payment history matters to all car insurance companies, and in some cases will lead your insurer to raise your rates. It may also have your insurer choose to not renew your policy when it comes to an end. Even worse, it could cause your current policy to lapse – leaving you without coverage.
Returned payment fees are no different than those charged by other places of business for checks that are returned unpaid. When you combine the fee charged by your insurer and perhaps insufficient funds or overdraft fees from your bank, they can add up quickly. But just like a late fee, you can completely avoid this fee by always paying the bill on your insurance premium fully and on time, and if you’re paying by check by always ensuring you have sufficient funds to cover the tab.