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Automobiles are heavy, dangerous, expensive pieces of machinery with a high probability of crashes. It’s therefore not surprising that most States in the United States require auto insurance. Besides helping you comply with the law, car insurance protects passengers and drivers. It also covers others from injury or damage done by someone who has no financial means to pay the cost of any damage they cause in a car accident.
With over 5.25 million police-reported car accidents in the US in 2020, car insurance is undoubtedly necessary. However, buying auto insurance can be complicated. And even with tons of available information on the internet, it’s easy to get confused about how car insurance works.
Here are seven essential aspects of car insurance you should know:
1. How Prices are Determined
Though each insurance company has its formula for calculating premium prices, they typically use the same primary factors. These include the model of the car, how you use Though each insurance company has its formula for calculating premium prices, they typically use the same primary factors. These include the model of the car, how you use the vehicle, and your driving record.
Other factors that determine car insurance include:
- Where you live: Do you know that where you live affects your auto insurance? That’s right. Insurers check your Zip code when analyzing how much premium you will pay. You could see your insurance shoot up if your local area has high crime rates. Insurers consider the rate of vandalism, burglaries, fraud, and theft in your area.
Your age, marital status, and gender: Insurers typically regard married people with a more robust financial standing than singles. Besides, research has shown
- that young drivers with less driving experience and male drivers are more likely to have accidents. Married drivers, on the hand, are less likely to file an accident claim. Another report reveals a married 20-year-old pays 21% less than a single 20-year-old for the same policy. In addition, women tend to pay less for car insurance than men, according to Forbes.
- Your Credit Score: A credit score is vital in determining insurance premiums in many States. While the industry regards drivers with better credit as having fewer accidents, consumer advocates believe this unfairly penalizes lower-income care owners. Despite the controversy around this issue, better credit often gets better rates.
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2. You Can’t Insure Your Car in the State Other than the One You Live In
- Your car insurance should correspond with your State of residency – where you live. Your auto insurance policy will typically cover you for quick trips
out of State. But for long-term stays, you need to update your policy to match
your new location. So can my car be registered in one State and insured in another? Living in one State and buying a car in another is insurance fraud. The only
exceptions are part-time residents such as students of snowbirds who spend the
winter in warmer climates.
The worst possible consequence of insurance fraud is potential jail time. But in most
Insurance companies are more likely to charge you the difference between your old premiums and what you should have been paying. They are unlikely to press charges, especially if they can verify that you mistakenly did not update your movement due to a lack of knowledge about insurance laws. However, insurance fraud is a crime, and you might still be investigated for fraud even if the company doesn’t file charges against you.
Another consequence of this type of insurance fraud is that your provider will most likely not pay for any damages from an accident that occurred during this time when the auto insurance address you provided was incorrect. They could also terminate your coverage and even mark it on your underwriting profile. This could cause your insurance cost to
increase, as other insurers will see you as a high-risk customer.
3. Things Your Car Insurance Cover
When many people think about car insurance, they imagine cases of mishandling claims or rate increases. But with a little more research in your policy, you might be surprised with what’s covered.
Here are a few of what car insurance can cover:
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- Lost wages after a car accident: If you miss work due to injuries from a car accident, your auto insurance may be able to get back some or all of the wages you lose. Also known as personal injury protection, this benefit covers injuries for you and your passengers regardless of who crashed the car. Personal Injury protection is a requirement in some States and optional in others. Enquire from your insurer if wage reimbursement is part of the perks included in your PIP.
- Riots: Whether your car gets damaged during a civil protest or sports fans lose their cool after a big game, your car insurance can help pay for the damage. A comprehensive plan can cover shattered windows, dents, scratches, and other forms of vandalism caused by the crisis.
- A friend crashes your car: One of the significant confusions regarding insurance entails the payment of damage when another person crashes your car. In most cases, your insurance pays, and the claim goes on your record. The collision coverage pays for the damage to your vehicle, while the liability insurance pays for the injuries and damage to others.
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4. The Difference between Comprehensive and Collision Insurance
- The first thing your auto insurance covers are a liability. This is the coverage for the damage you do to another person, their car, or their property. However, in addition to liability, there’s comprehensive and collision.
The most significant area of confusion involves identifying the difference between comprehensive and collision. A survey report reveals that 68% of Americans incorrectly believe the comprehensive part of their policy automatically covers damage to their car from a collision.
- Comprehensive: This type of coverage protects against damage caused by other incidents other than collisions. This includes flood, fire, hitting a deer, vandalism, and falling trees. It also has theft protection.
Both collision and comprehensive are optional insurance that protects your car. Liability insurance, however, is a requirement by most States because it covers costs associated with death, injuries, and damage caused to another vehicle or property by you or another driving your car.
5. How to Reduce Auto Insurance Coverage Cost
One of the major ways to keep your insurance cost low is to have a good driving record. In addition to that, shop around for options and ask friends and family for recommendations. Compare prices to see which insurers offer discounts.
- Collision: You get compensation for damage to your vehicle that occurs due to another vehicle or other object when you’re at fault. It covers damage from potholes or from rolling your car.
- It’s also crucial to buy a car model that has safety features to reduce the risk of injuries or theft. To decide the car to buy, check information from reputable sources online on the car’s level of risk. If insurers consider the car high risk, you may have to pay more.
You can also take advantage of low mileage discounts. Some insurance companies offer discounts to drivers who drive a few miles per year. Consider group insurance by getting insurance through your employer or any organization. Some companies offer discounts for group insurance.
Other ways to qualify as a low-risk driver and reduce your insurance cost are taking a driver education cost and keeping your driving record as clean as possible.
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6. How to Choose the Best Deductible for You
- The deductible entails the amount you pay before your insurer pays. For instance, if you have a $1,000 deductible and $2,000 in damage to your car, you will pay $1,000, and the insurance provider will pay $1,000. If the damage is $999, you pay the total amount, and the insurance company pays zero. You should always test the value of the premium
benefit you get. Compare how much you’re going to save on the front end if you
increase the deductible by a couple hundred dollars.
In addition, keep in mind that your vehicle goes down in value over time. As the value of the car reduces, your comprehensive becomes less valuable. Your premium will go down as well at a certain point. So having coverage on a vehicle that’s only worth a small amount of money. Experts recommend dropping this kind of coverage when the annual premiums go above 10% of your car’s value.
7. How a No-claims Bonus Works
Insurers offer you a discount when you don’t claim on your policy. The discount increases each year as long as you don’t make a claim. This bonus can be generous too, with discounts ranging from 20% after a year to 50% or more after five years. However, if you have an accident and claim for it, your premiums will go up, and you generally lose two years’ worth of no claim’s bonus. Frequent accidents in a year can cause you to lose all your no claims bonus. It’s crucial to inform your insurer about any
accidents you’ve been involved in – even if you don’t make a claim. Failure to
do this might result in future claims being rejected.
Conclusion
Driving without auto insurance is risky. Besides being fined by your State in the event of an accident, you might not be able to cover expenses and prevent litigation that results from the accident. Ensuring your vehicle also protects your vehicle against theft, natural disasters, and vandalism. As with other types of insurance, your circumstance will determine the cost of auto insurance.
