How Auto Insurance Works
Auto insurance is required in when operating a motor vehicle (please refer to your state requirement). Whether you are buying a new insurance policy or renewing your current policy, you must make many decisions about what coverage you need and how much you can pay. The following guide outlines how to make choices that work for you.
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- Auto Insurance Buyer's Information Guide -
* Terms and Definitions May Vary Per State and Insurance Carrier / Company
What factors determine the price of your
auto insurance premiums?
The amount you’ll pay for car insurance is impacted by a number of very different factors—from the type of coverage you have to your driving record to where you park your car. While not all companies use the same parameters, here’s a list of what commonly determines the bottom line on your auto policy.
You
Where you live
Due to higher rates of vandalism, theft and accidents, urban drivers pay a higher auto insurance price than those in small towns or rural areas. Where you park your car (on the street or in a secure garage) and anti-theft features may impact the bottom line as well. Other factors that affect premium price that can vary from one area or state to another are: cost and frequency of litigation; medical care and car repair costs; prevalence of auto insurance fraud; and weather trends..
Your driving record
The better your record, the lower your premium. If you've had accidents or serious traffic violations, it's likely you'll pay more than if you have a clean driving record. You may also pay more if you're a new driver without an insurance track record.
Your Credit
Similar to your credit score, your credit-based insurance score is a statistical tool that predicts the likelihood of your filing a claim and the likely cost of that claim.
Auto
The car you drive
The cost of your car is a major factor in the cost to insure it. Other variables include the likelihood of theft, the cost of repairs, its engine size and the overall safety record of the car. Automobiles with high quality safety equipment might qualify for premium discount.
How much you use you car
The more miles you drive, the more chance for accidents so you'll pay more if you drive your car for work, or use it to commute long distances. If you drive only occasionally—what some companies call “pleasure use"—you'll pay less. If you drive your auto less than 7,000 annual miles a year, you may qualify for pay per mile insurance policy premium. Telematics is ability to lower your costs based on the amount you drive.
Coverage
Policy type
Insurance policies use terms that may be unfamiliar to the average driver. It is useful to understand what these terms mean so you can make better, more informed decisions about your coverage. The less you pay for insurance may also reflect your coverage level. Always make sure you understand coverage amounts and options before agreement with any insurance policy
Deductible
A car insurance coverage deductible is the money you pay toward an accident or a claim. Please make sure it amount you can afford. You will pay the deductible out-of-pocket when you file a claim under certain coverages. You may see deductibles for coverage such as comprehensive, collision, uninsured motorist property damage, and personal injury protection (PIP).
Discounts
For example, some companies offer discounts to those who've not had any accidents or moving violations during a specified period, or who have taken a defensive driving course. If there is a young driver on your policy who is a good student, has taken a drivers education course or is away at college without a car, you may also qualify for a lower rate. Ask your insurer what discounts you might qualify for, but keep in mind that what's important is the final cost of your policy. A company that offers few discounts may still be able to give you a lower overall premium price.
Understanding Auto Insurance
Coverage requirements are different in every state, but most states
require the following:
Bodily injury liability
If you or another driver in your car cause damage to someone else's vehicle or property, such as a fence, building or street sign this coverage will help pay for that damage.
Discounts
If you qualify for discounts on auto insurance coverage, you could potentially save a lot. Always ask your insurance company what discounts they offer new customers.
Policy type
If you're involved in an accident where another driver is injured or dies, then this coverage will help with medical expenses and liability if you're sued.
Some states will also require these coverages:
Medical payments or Personal Injury Protection (PIP)
First-party auto insurance coverage, meaning it pays for your medical expenses, lost wages and other costs if you're injured in a car accident. PIP also covers medical expenses of passengers in your car if they're hurt due to a collision.
Uninsured motorist coverage
Pays you for property damage or bodily injury if you are in an auto accident caused by an uninsured motorist.
Additional insurance coverage - Full Coverage
Full coverage usually refers to the combination of collision and comprehensive coverage, both of which protect your vehicle from physical damage. Collision covers your car in the event you collide with another object or vehicle, while comprehensive basically takes care of damage other than collisions, such as a hailstorm. Full coverage is required if you have financed or leased auto.
Collision
Auto glass insurance coverage, or full glass coverage, is an optional policy offered by many auto insurance companies. Full glass coverage covers your vehicle's windshield, windows, and other glass by repairing or replacing your damaged glass. Insurers may include glass repair insurance coverage in your comprehensive policy,
Comprehensive
Comprehensive coverage helps pay to repair or replace your car if it's stolen or damaged by something other than a collision. Comprehensive typically helps cover theft and damage from vandalism and natural disasters, falling objects, fire, hail, flood or animals.
Gap insurance
Gap insurance is an optional insurance coverage for newer cars that can be added to your collision insurance policy. It may pay the difference between the balance of a lease or loan due on a vehicle and what your insurance company pays if the car is considered a covered total loss.
Glass coverage
Windshield damage is common and it may not damage other parts of your car. Some auto policies include no-deductible glass coverage, but if yours doesn't, you can buy supplemental glass coverage to protect against hail or road debris. These policies may also cover damage to side windows, rear windows and glass sunroofs.
Under-insured motorist
Pays you for property damage or bodily injury if you are in an auto accident caused by a driver who is insured, but who has less coverage than your underinsured motorist coverage.
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