What Is an Experience Letter for Insurance?
One of the biggest mistakes people make with insurance is not taking advantage of as many discounts as possible. When an insurance company sets the cost of your insurance or annual premium, it will look at various factors to come up with the price of your policy. Those factors include personal information like the info in your insurability or insurance credit score.
The company will also consider your insurance history, such as how long you've been insured and how many claims you've made—and this is where experience letters come into play.
A "letter of experience," otherwise known as a "letter of claims experience" or "proof of prior insurance," can help you prove your insurance history. This is helpful when you are looking for new insurance or when you move to a new country and you want the best rate possible. Here are the basics of letters of experience and how to use them to save money on your insurance.
What Is a Letter of Experience for Insurance?
In the simplest terms, a letter of experience is a document written by an insurance company that has insured you in the past. The letter details your record with them, including any claims or lapses in coverage.
You can think of this letter as the insurance industry's version of a letter of recommendation. This letter of experience is your former insurance company's way of "vouching" for you to new insurance companies who do not know you. Having a letter of experience that demonstrates a strong history of coverage can provide you with insurance discounts.
All you need to do to get a letter of experience is to ask your insurance company. If you haven't been insured for a couple of years, you can still call your last insurance company and ask them to send you one.
What Information Is Included in a Letter of Experience?
A letter of experience will contain all the information an insurance company needs to determine your premiums. Each insurance company has different ways of creating these letters, but in general, there are some pieces of information you can expect to find in them.
The letter should include details of what was insured. For example, if you insured a home, it will state the address of the "risk" insured. For car insurance, it may state the vehicle and serial number.
Everyone whose name was on the insurance policy will also be included. This, of course, includes the registered owner of the property or car. It may also include other people, such as when a car insurance plan covers multiple drivers. If a home policy included additional named insured in special clauses, you may request a letter of experience for them as well.
The letter of experience would also detail the timeline for your coverage, including effective dates and end dates. It may include information regarding why your policy ended. If it was canceled for nonpayment, or if you owe money for your insurance premiums, this may show up.
Any claims paid during the time of insurance will certainly be included, along with details of the cause of the claim, and how much was paid. If there were no claims, then it should state "there were no claims paid during the period." If there were claims for various drivers, it separates the claims by the driver. You may request separate letters for each person.
Who Needs a Letter of Experience?
If you've been consistently insured in recent years, you probably won't need a letter of experience. That's because this process is largely automated by the Comprehensive Loss Underwriting Exchange (CLUE). Insurance companies report your history to CLUE. When you sign up with a new insurance company, that company will check your information by requesting your CLUE report.
If an insurance company needs a letter of experience, they will ask for one. Common reasons for this include:
- Moving to a new country
- Lack of insurance for an extended period
- Further need to prove or dispute claims on record
- Never being the primary person insured (such as teens, college students, and recent divorcees who were previously included on a family member's plan)
Not all insurance companies require a letter of experience. If you are not sure, ask your company if a letter of claims experience or insurance history would help.
Why Get an Insurance Experience Letter?
The more insurance history you have, the less risky you are considered by insurance companies. That's why having renters insurance before you buy your first home insurance can save you money, for example.
When you can prove a history of being insured, it will usually result in lower costs. This is especially true if you can prove you haven't made many claims. Multiple small claims may make the underwriters nervous about insuring you. On the other hand, seeing you had no claims will usually entitle you to a discount.
When a Letter of Experience Won't Help
Even if you took all the right steps and requested your letter of experience, that doesn't change what's included in your letter, and it doesn't entitle you to cheaper coverage. Depending on how your insurance company determines prices, the information in your letter of experience may or may not give you the discount you were expecting.
For example, your letter of experience may show 18 months of good standing, but your new insurance company only gives a claims-free discount after three years. If that's the case, you may not get that discount for another year and a half.
Insurance company prices differ by a variety of factors, and sometimes subtle differences can have a significant impact on the price you pay, so it's best to shop around and contact customer service to find the best coverage for you.