Final answer:
To keep insurance costs down, choosing a policy with a deductible, engaging in cost-sharing practices like copayments and coinsurance, and maintaining a good driving record can help lower premiums. However, when state regulators set low premiums, insurers may avoid high-risk clients or withdraw from the market altogether.
Step-by-step explanation:
One good way to keep down insurance costs is to select a policy with a deductible, which requires the policyholder to pay a specified amount out of pocket before insurance coverage kicks in. This can be seen in various types of insurance such as auto, health, and home insurance. For instance, an auto insurance policy might not cover losses under $500, meaning any damage below that amount would be the responsibility of the policyholder. Furthermore, employing cost-sharing methods like copayments, where the policyholder pays a predetermined fee for services, and coinsurance, where both the insurance company and policyholder-split costs, can also reduce premiums. Lastly, maintaining a good driving record, choosing a car with a strong safety rating, and considering the frequency of payment options like monthly, quarterly, or semi-annual can impact the overall insurance rates.
However, when state insurance regulators attempt to set abnormally low premiums, insurance companies may shun high-risk profiles or cease operations in that state to maintain profitability. This happened in New Jersey when multiple insurance companies ceased doing business due to regulations attempting to keep auto insurance premiums low. Similar situations have been observed in different states, including Florida where State Farm withdrew from selling property insurance in 2009.