An Overview of Auto Insurance

Introduction to Auto Insurance

It’s a contract between you (a motorist/driver) and the insurance company that’s willing to protect you against financial loss in the event of a car accident or theft. The purpose of auto insurance is to protect the policyholder against incurring high costs when their vehicles are involved in accidents or bodily harm resulting from accidental collisions.

Types of Auto Insurance

If you are looking forward to buying auto insurance, then it’s important to know all the types of coverage available. There are various types of vehicle insurance and they are all designed to protect you and your vehicle in case of an accident. The six common types of insurance policies include:

1. Auto liability coverage

This is one of the most common types of insurance policies and it’s mandatory in most states in the US. As per the state’s laws, motorists are required legally to buy at least two minimum liability coverage. There are two components of liability coverage:

  • Bodily injury liability: it’s used to cover the costs that are related to another individual’s injury through an accident that you caused.
  • Property damage: the coverage caters to damages to another person’s property that you caused while driving

2. Comprehensive coverage

It covers cases such as fire, hail, vandalism, and theft. Comprehensive coverage can be used to repair or replace the vehicle after such cases and it normally has a deductible. This is the amount you are required to pay out of pocket before the insurance company can reimburse you for your claims.

3. Collision coverage

This insurance policy covers vehicles that are involved in accidents with other vehicles or objects. Collision coverage is meant to help you replace or repair your car. In case of replacement, you can be given up to its actual cash value and without the deductible.

4. Uninsured and underinsured motorist coverage

When accidents happen, you can sometimes be hit by a driver who doesn’t have an insurance cover. Alternatively, the motorist may be underinsured and this means that they may have insurance but there have small liability limits. As a result, they can’t effectively cover your medical bills. To protect yourself against such incidences, you should go for such an insurance cover.

5. Medical Payments Coverage

In case you or any other person who was driving your insured vehicle ends up getting injured after an accident, medical payments coverage can help to offset medical bills that are associated with the injuries. These costs may include the likes of x-rays, surgery, and hospital visits among others.

Note: this is a common type of insurance but it’s not available in all the states. In some places, it’s optional.

6. Personal Injury Protection (PIP)

It’s common but only available in specific states. PIP is just like a medical payment policy because it’s designed to help you cover your medical expenses after an accident. Besides that, you may use to cover other expenses that you could have incurred as a result of injuries, for instance, childcare expenses.

Auto Insurance Rates in the US

The average cost of car insurance in the US currently stands at $1,758 annually. However, the rates designed by insurance companies vary from state to state. Michigan is the state that has the most expensive car insurance for several years in a row. On average, an individual needs to pay around $3000 annually to an auto insurance agent. Louisiana is another state that has expensive car premiums.

There are several reasons why some of these states have high auto insurance rates. Well, this could be due to the high population density that leads to high demand hence price competition. Besides that, other factors that have made the premiums to skyrocket include costly lawsuits, a high number of uninsured drivers, in addition to unique insurance schemes.

States that have a generally low population density have cheaper insurance premiums. This is because with a lower population density, there are very few accidents and this consequentially lead to fewer claims. So, everyone ends up getting lower premiums.

Some of the states in the US that have generally lower auto insurance premiums include Maine which is mostly rural, New Hampshire which has a median density and a competitive market, and Wisconsin, a semi-rural state with a competitive market.

How are Auto Insurance Premiums Determine?

Each company has its own unique formula designed to help determine the premium prices. However, nearly all of these companies use the same factors for considerations. This includes the model and makes of the vehicle, and how you use it. Other factors include:

  • Gender and age: research studies indicate that young drivers, especially those with few years of experience in addition to males are more likely to cause accidents. On the other hand, married individuals are more cautious and hence less likely to cause accidents.
  • Location: where you reside matters a lot. Those who live in urban areas where the population is dense usually pay higher premiums. This is because there are more chances of accidents and the crime rate is quite high as well. On the other hand, if you state in a rural area, the premiums are quite low because of fewer chances of car thefts and less traffic.
  • Your credit card score: this is another crucial factor that’s used to determine premium in most auto insurance companies. According to industry experts, those with good credit scores usually have lower chances of causing accidents. Well, do you think this is true?

What Should You Know About Auto Insurance?

Before you settle for any auto insurance agency, it’s important to equip yourself with the right information. There are a lot of factors that car insurance companies usually consider and here is what you should know:

Personal auto insurance doesn’t cover for cars used in business

Most insurance companies usually exclude insurance options for those driving personal vehicles to handle their business matters. In fact, if your insurer discovers this, they may terminate your contract with them. In case you get into an accident and it’s determined you were using your personal vehicle for business purposes, you won’t get anything.

If you are going to use your personal car for business, talk to the auto insurance agency so that they can hook you up with the right policy.

You Can Always Lower Your Insurance Costs

There are several ways that you can use to lower your auto insurance bills. Some people even work around and find techniques that can help them lower the whole coverage.

For example, you can save money by raising deductibles for comprehensive insurance coverage of an old car. This is the amount you will need to pay before the insurance coverage fully kicks in and once it does, you will have something to smile about.

Reports from the Insurance Information Institute indicate that in case you increase your deductibles from $100 to $400, you can significantly reduce your comprehensive and collision coverage by 15-30%. On the other hand, if you decide to reduce your deductibles, you will end up saving less.

Meanwhile, most insurance agents love to offer discounts for those drivers without traffic violations in the last three years. Those with multiple vehicles or low mileage also get good discounts. Lastly, if you decide to bundle homeowner’s and auto insurance coverage together with the same company, the premium pricing will reduce significantly.

A More Expensive Vehicle Doesn’t Necessarily Lead to Higher Costs

There is a common misconception that the more expensive a vehicle is, the more it will cost to insure it. However, this is not usually the case. That’s why we want you to do comprehensive analysis in order to find what will work for you.

There is a Big Difference between Comprehensive and Collision Coverage

Don’t get confused between these two terms. More than 50% of Americans actually believe that if they have comprehensive coverage, then it will cover collision damages as well. This isn’t true and here is what you should know:

  • Collision coverage: in case your vehicle collides with another vehicle or an object, then you are eligible to claim reimbursement even when you are at fault. The collision may happen when you hit a guardrail, a tree, or potholes among others.
  • Comprehensive coverage: The insurance company covers you against theft and damage that’s not caused by a collision. This may include floods, fire, hail effects, and vandalism among others.

Note: as a legal requirement, insurance companies must offer liability insurance that covers damages caused by other vehicles and objects or damages that are associated with death and injuries.

Insurance Claims Are Strictly Vehicle-Based

You will still get your claims even if someone else was using your car in the event of an accident. The general rule for auto insurance is that it doesn’t apply to the driver but the car.

So, if you give someone else your car to use, you are also giving them the insurance coverage. However, this doesn’t get tempted to cancel your insurance because you think you won’t be driving for an extended period. This is because you might end up paying higher premiums when you want coverage again.

Benefits of Auto Insurance

Car insurance is a requirement that all drivers need to have in nearly all the states. It’s not a mandatory in few places such as New Hampshire but drivers will still need to verify that they can afford accident costs in case it happens. But why exactly do you need to have one?

It Gives You Peace of Mind

Accidents happen even though we can’t tell when and how. If you are driving a vehicle, you may end up causing an accident or someone/ something else may end up hitting your vehicle. However, you can have peace of mind if you are insured. Auto insurance gives policyholders the confidence they need when driving around.

Low Costs in Case of Accidents

An insurance cover gives you a chance of only paying a small amount in case of an accident. It should be noted that big accidents can happen and they may cost thousands of dollars. However, you will pay less since the coverage will cater to most of the costs.

May Minimize Chances of Vehicle Devaluation

Some auto policies actually come with lots of benefits including maintaining the value of your vehicle. Note that sometimes you can’t stop certain factors from causing damage to your car. For instance flood, hailstones, or even falling tree branches.

However, you can still maintain the value of your car if you have comprehensive auto insurance. It prevents you from personally covering loses and ensures that you get the right vehicle repair on time. In the long run, you will find that the life of your vehicle is elongated and you can easily find a market for it in case you want to sell it.

You’re protected against Lawsuits

You might be responsible for some accidental mistakes and even end up damaging someone else’s vehicles. Some of these accidents may warrant expensive lawsuits and if you aren’t auto insured, you might be forced to even sell your house.

However, nothing is worth losing if you have the right auto insurance. While other people might decide to pursue a lawsuit, a car policy is like a cushion that protects you when such cases arise. You can even use it in legal defense in case it’s necessary.

Access to a Large Network of Garages

You can use an auto insurance agency to access a large network of good garages. Some of these companies have teamed up with garages to ensure that their policyholders have access to premium services at cost-effective prices.

In such a scenario, you will end up receiving subsidized charges or cashless services. This is a highly beneficial feature because you can always avail of your car for repair and maintenance whenever necessary.

There are many types of accidents that can happen. Some may be caused by you while others may be caused by other drivers, objects, and animals. But regardless of the situation, you need to ensure that your vehicle is protected and that’s why you should sign-up for an insurance cover.

Factors to Consider When Choosing an Auto Insurance Company

Before you settle for an auto insurance agent, there are several factors that you must consider. The most important ones include:

Licensing

Make sure that the company you want to do business with is licensed by the right authorities. You don’t want to give monthly premiums for an illegitimate company that will disappear with your money. What if you get in an accident and fail to get compensated? Not only will you have lost your money paying for premiums but you will still need to pay for damages.

Insurance Costs

Generally, the auto insurance sector is one of the most competitive. Even though there are companies that charge high amounts of premiums, you can still find a company that suits your needs.

This is because vehicle insurance is a requirement in almost all states. So, companies must competitively work to auto do each other in order to get more customers. Generally, this involves setting up different costs. Make sure that you get price quotations from at least three different companies.

So, make sure that you shop around. However, you shouldn’t just consider settling for a company that has the cheapest coverage because the compensation might be quite low.

Sign-up process

No one wants to deal with lots of paperwork and processes when it comes to seeking insurance. A good company should provide interested policyholders with a hassle-free process.

A cumbersome procedure that’s demanding is easily a turn-off. The most popular companies have seamless procedures that are simple, convenient, and quick.

Customer support

If you get in an accident or anything happens to your vehicle, you definitely need to get in touch with your insurer. That’s why a reliable customer support system is very important. This helps to ensure that your questions and issues are resolved on time.

A good company should have multiple channels of communication. You can make direct calls in case of emergencies. However, there should be an option of email in case you want to send documents or even live chats to ensure that issues are resolved in real-time.

Assurance

Generally, auto insurance is supposed to give you a sense of security. However, you need a company that assures you of this. The company’s agents should be able to provide you with the right information and also offer you guidance on matters related to insurance coverage.

Direct Dealers

The best auto insurance companies have agents. This is important in ensuring that services are localized and in case of an issue, you can always get in touch with the local dealer.

Note: however, be keen when dealing with agents. There are those that charge hefty commissions and promise you heaven. Don’t fall into that trap because some of these people are known to be cunning scammers who are only interested in what they get in return. Look for auto insurance that offers value for money.

The Bottom Line

Signing up for auto insurance as a driver is very important. Accidents can happen at any time anywhere. This may be caused by you, other motorists, and objects. Even though there are many types of insurance plans, make sure that you choose a company that’s willing to protect your and your vehicle.

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