A surcharge schedule spells out exactly when and by how much your insurance company can raise your car insurance premiums.
If you don't know about surcharge schedules, you're not alone. While many drivers carefully price shop for car insurance, many are unaware of surcharges that can stack up in the case of an accident, a traffic ticket, an inexperienced driver or even through state regulations.
"This isn't the side of the business insurance companies normally like to promote," says Penny Gusner, CarInsurance.com consumer analyst. "They want to promote the discounts and how much you can save, not 'if you get two tickets your policy may go up by 50 percent.' "
Her advice: Ask.
In most states, if you're already a policyholder, you should be able to insist that your insurer provide you with a surcharge schedule. In some states such as North Carolina and Massachusetts, the surcharge schedule is spelled out under state law.
What does a surcharge schedule look like?
Every insurance company will express its surcharges its own way, and the amounts and circumstances may change from state to state even within the same insurance company.
Typically, though, a surcharge schedule acts as a kind of points system, similar to driver's license points. At certain thresholds, the policyholder's rates rise by a predetermined amount.
"Surcharges can be any amount, as long as the amount is filed with the state insurance regulator and approved by the state," says Gusner. "For a minor violation a surcharge can start at 5 percent and for major offenses it is higher, 20 percent or much more. Some will charge 300 percent for a DUI."
For example, one Minnesota insurer assigns 4points to a chargeable accident with a claim of $750 or more and 3 points to a speeding conviction for 10 mph over the limit. Its surcharge schedule shows the rate for a driver with 7 points would be multiplied by 1.27 -- that is, a 27 percent increase.
Typically the surcharge applies to your liability, comprehensive, collision and medical payments rates.
Are you being surcharged?
Surcharges are likely listed, along with your discounts, on the declarations page of your car insurance policy, says Gusner. That will allow you to understand what you can do to avoid certain surcharges (don't speed) and when you may have some surcharges eliminated (for example, when a driver outgrows an "inexperience surcharge.")
Anyone who thinks that they don't have to worry about surcharges need only look to Massachusetts, where four auto insurance companies recently settled allegations that they levied unfair surcharge fees on consumers.
"Our investigation has revealed troubling defects in the policy processing systems used by auto insurance companies," Attorney General Martha Coakley says. "These cases underscore the need for insurance transparency and oversight."
Surcharges added due to tickets are usually removed after the item is vanquished from your driving record, says David Bakke of the personal finance site Money Crashers. That time frame can vary by state but is three years for typical minor infractions.
Accident surcharges also vary depending on the state, but the amount may shrink as time passes.
"Some states offer the ability to appeal a surcharge on your insurance policy," Bakke adds, noting you may be stuck with some fees to do so.
Other things you may find out by looking at your policy's surcharge schedule:
You may be receiving a discount. If the surcharge rate for someone with zero or very few points is less than 1.00 -- say, 0.79, that means their rate is discounted.
Some accidents aren't chargeable. Your insurance company might not surcharge you if you weren't moving at the time, or were rear-ended, or the victim of a hit-and-run.
Some violations aren't chargeable: Seatbelt tickets, noise violations or an expired registration, for example, aren't likely to bring a penalty.
How surcharge points are applied. For example, in a case where there is a chargeable accident and a violation at the same time, the insurer may count only the accident points. In households with multiple vehicles, the surcharge schedule will determine which vehicle premium is affected. Usually it's the most expensive one.