A GUIDE TO AUTO INSURANCE

17 June 7 MINS READ
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What if your car is wrecked and needs to be replaced? There are situations and natural calamities that can destroy your vehicle, and in those cases, you'll only be able to rely on your insurance. In case such a situation arises, it is better to have enough coverage to fully repair or replace your vehicle. Now that's one.

Accidents happen, and when they do, insurance is what keeps our finances safe and sound. Whether an auto collision is your fault or somebody else's, your car insurance coverage should help you. But how much it helps is totally going to be dependent on the combination of options that comprise your insurance policy.

Experts often tell you to buy as much car insurance as you can afford. That's probably not helpful unless you know the basics on how auto insurance works and which coverages you can't skimp on. That's what this article is going to provide you.

WHAT IS AN AUTO INSURANCE QUOTE?

An auto insurance quote is a price estimate of how much you will pay for a policy, based on the information you've provided about yourself, your age, your car, where you live, and so on. Car insurance quotes are as accurate as of the information you provide. Wait a minute. You know that car insurance is synonymous to auto insurance, yeah? Just to be sure. So moving on.. The more accurate information you're willing to share about yourself, the closer your insurance quote will be to the actual price of a policy. Although, insurers  assess risks differently and each use their unique formula to calculate a car insurance quote. So even if you provide the same information to different auto insurers, no two quotes will be the same.

Plus, quotes are always changing. You can get an auto quote today then get one in a couple of months from the same insurance company, and it might be a little different based on what’s happening with that auto insurer’s data. The more auto insurance quotes you get, the better chance you'll have of finding the cheapest option.

WHAT FACTORS INFLUENCE AUTO INSURANCE QUOTES?

There are probably 100 or more different variables that go into what the quote is and it varies from company to company, which is why it’s always smart to get more than one quote. Auto insurance companies use many different criteria to evaluate an insurance application via a process called underwriting. Each car insurance company has guidelines regarding which groups of drivers they want to accept and how much they will charge the groups they consider a greater risk. The guidelines are different for each company, meaning that two companies comparing the same driver can arrive at vastly different conclusions.

Before you get a quote, the insurance company is going to do a little digging about you. During the underwriting process, you will be placed in a group with other applicants based on how much money and how many claims the insurance company believes it may have to pay.

At this time, the insurance company will look at things like your driving history, whether you’ve been in a lot of accidents, your age, gender, and a bunch of other demographic factors. These factors vary from insurance company to insurance company, but the following are pretty common to most:

1. Driving Record: If you've had accidents or serious traffic violations, you'll likely pay more. But with a good driving record, you should get a lower auto insurance rate. And oh, if you are a new driver, you may also have to pay more because it’s believed that new drivers are more of a risk on the road.

2. Type and Amount of Auto Insurance Coverage: The types of coverage you choose (we'll talk about this soon) and the limits and deductibles you select for each type of coverage will play a role in the cost of your insurance policy.

3. Age: If you are young, say under 25, insurers will charge you more. All because they believe people your age tend to have more accidents than drivers with more experience.

4. Location: If you live in an urban area (considered to be more susceptible to vandalism, theft, and accidents), you’ll likely pay higher rates than those living in suburban or rural areas.

5. Gender: Men tend to get into more accidents, have more driver-under-the-influence accidents, and have more serious accidents than women. Research has shown. As a result, if you are a woman, you'll likely pay less for coverage.

6. Car Value: The value of your car is a big factor in the cost to insure it. If you buy a more expensive car, the insurance on it will likely be higher because it’ll cost more to replace or repair. Sometimes, insurance companies offer discounts if your car has high safety ratings or high-tech safety equipment.

7. How Often You Use Your Car: Insurance companies will consider if you drive regularly when calculating a quote. The more you're on the road, the more likely you are to get into an accident. So you’ll likely pay more if you drive your car often.

8. Credit Score: Many auto insurance companies look at your credit history. Typically, drivers with bad or no credit history pay more. In many states though, insurance companies use a similar factor called a credit-based insurance score. It’s a statistical tool that would use specific elements of your credit history to predict how likely you are to file a claim.

WHAT INFORMATION DO YOU NEED TO GET AN AUTO INSURANCE QUOTE?

To get an auto insurance quote, whether online or directly from an agent, you’ll need to provide some personal information like your name, date of birth, gender, address, marital status, social security number, and vehicle information. You'll also need to provide information on any family member you want to cover on the policy. The insurance company may also pull a copy of your driving record, previous insurance claims, and credit history or credit-based insurance score, as the case may be.

WHAT TYPES OF COVERAGE APPEAR ON AN AUTO INSURANCE QUOTE?

Coverage affects what you pay. The majority of your car insurance premium generally goes toward the policy's legally required liability portion. It's typically not a good idea to reduce this portion to save money because you'll be responsible for any amount of damages above your policy limits. But you can reduce or eliminate other coverages to lower your premium.

But what are these coverages? What type of coverage appears on a car insurance quote? Seven major types of coverage may appear on your quote.

Liability Insurance

There are two types of liability coverage — bodily injury and property damage. One covers costs associated with injuries following an accident; the other covers costs associated with damage to personal or business property. Bodily injury liability helps protect you if you cause an accident and someone sues you for damages because of their injuries. The liability limit in your policy is the maximum amount your insurance company will pay.

Property damage liability helps pay for damage you cause to other people’s property while driving your car. It includes damage to vehicles as well as other structures such as fences and lamp posts.

Both can protect you financially from personal lawsuits stemming from an accident.

Failing to obtain necessary liability coverage could result in a suspension of your license and/or fines and jail time.

Uninsured Motorist Bodily Injury

Unfortunately, not everyone has insurance. Don't trust other drivers and don't take for granted that they will have as good coverage as you do. Uninsured motorist coverage helps pay for medical bills and damage to your vehicle if you’re in an accident with an uninsured (or underinsured driver), and they’re at fault.

Though it can be hard to digest that you must pay a premium and the deductible for someone else's mistake, it's better than forgoing this coverage and risking losing your vehicle. It also protects you if you're the victim of a hit-and-run or you're a pedestrian and get hit by an uninsured or underinsured driver.

Personal Injury Protection

If you or your passengers are injured in an accident, personal injury protection helps cover medical bills and lost wages. If the accident is fatal, it may also pay for funeral expenses.

Medical Payments Coverage

It helps pay for medical bills you or your passengers incur because of an accident, regardless of who was at fault, just like personal injury protection.

Collision Insurance

Collision coverage helps pay for damages stemming from an accident. It includes damage to your vehicle if you hit another car or a stationary object such as a fence, lamp post, or telephone pole. It's optional, but lenders often require it if you finance or lease your vehicle.

Comprehensive Insurance

Comprehensive coverage helps pay for damages related to things other than accidents such as theft, natural disasters, falling objects, and contact with an animal. Like collision coverage, it's optional, but your lender may require it if you finance or lease your car.

Getting Stranded

A vehicle is a combination of mechanical, electrical, and rubber parts. Things can go wrong at any time, and they are not always in your power to prevent. However, being prepared for those events is in your power if you add towing and rental coverage to your insurance. This might work out better than having a separate towing club membership, which could save you those annual fees.

BOTTOM LINE

Car insurance is designed to protect you financially if you're involved in an accident or your vehicle is damaged, and almost every state requires some type of liability coverage for drivers. Having ample and reliable insurance coverage is a very important component of auto ownership: You don't want to experience money problems when you are already going through the trauma of an accident.

Shopping around is important for finding the best deal on car insurance rates. You should do this only when you understand the coverages that are best for you. Be a smart buyer, do the proper research, compare quotes, and choose the options that are the best fit for your needs and budget.

Remember that the premium isn't everything when shopping for car insurance. Carefully review your coverage options and policy limits to make sure you have appropriate coverage based on your situation and your state laws.