Getting cheap auto insurance is not as simple as carrying minimum liability limits only. It is a myth that those with the lowest limits and coverages always pay the least for their auto insurance. Insurance companies are in the risk game.
Typically, they gather as much data as possible, about different groups of people, to determine who has the best risk characteristics. Once they have identified their target market and who they want to attract, they price their products accordingly, in order to bring those clients in. Remember that insurance companies are for profit entities.
In the simplest terms they generate profits by selling policies, keeping those policies in order to continue the revenue stream and controlling claims costs in order to pay out less in claims than what is brought in.
Insurance companies also generate revenue by investing their money but for the sake of simplicity, we will keep the discussion to premium in and claims cost out. Statistically, the group of clients that purchase minimum liability limits and no other coverages have more accidents and stay with their insurance company for the shortest time. Little to no profit is made on this group of customers. Therefore, they typically pay the most upfront and experience the largest increases when rates are changed.
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