What is Auto Insurance And Why Do You need it?

Auto insurance policies protect you from economic loss or damage when you are involved in an automobile accident. For example, an insurance policy can pay for the cost to repair or replace a damaged automobile, for the cost of medical treatment for an injury or illness or for the lost income of a person who dies or is unable to work.

The purpose of auto insurance is to protect your assets and income.

If you don’t have auto insurance, and you are involved in an accident, regardless of which party is at fault, you’ll be paying expenses yourself that an insurance company would usually pay for.

If you are sued you will have to arrange for the defense of the lawsuit. This usually involves hiring an attorney experienced in the defense of automobile liability cases to represent you, which can be extremely costly.

You will have to pay the attorney’s fees and other court-related costs, even if you ultimately are found not to be legally responsible for any damages.

If you are found to be liable for causing damages to the party who sues you, a “judgment” will be entered against you for a specific sum of money.

The amount of the judgment could be a very large sum of money, potentially hundreds of thousands of dollars. You will be required to pay for the extent of the damage and the severity of the injuries that you caused.

However, if you fail to pay or are unable to pay the full amount of the judgment, the party who obtained the judgment becomes one of your creditors and could start legal proceedings to collect the money from you.

Your insurance policy can provide other very valuable benefits to you.

Most states require drivers to purchase a minimum amount of insurance coverage to legally operate a vehicle, but many people still drive without it and cause accidents.

You can purchase insurance coverage that will protect you in the event you are injured or your vehicle is damaged by a driver who is not insured.

You can then be compensated for any injuries or losses without having to collect from the uninsured person.

Other provisions available in some states will pay your medical bills for accident-related treatment or increase the amount available to cover your injuries if they exceed the other driver’s policy limits.

How Much Does Auto Insurance Cost?

Individual auto insurance rates will vary for each person based upon a number of factors such as the number of miles driven yearly, whether the auto is used for business or pleasure, the age and model of the vehicle, and the driver’s history of convicted traffic offenses.

State law often limits the specific rating factors that insurance companies may consider when pricing an auto policy.

The rates and rating factors for most types of auto insurance must be filed with the insurance regulatory agency for each state where the insurance is to be sold.

In some states and for some types of insurance, the rates must get regulatory approval before they can be used.

Specific factors that go into calculating cost usually include:

1. Your driving record and insurance history

Most states require an insurance company to accept an applicant at regular rates unless they fail to meet specific eligibility requirements.

However, having traffic and drunk driving convictions, as well as substantially-at-fault (more than 50%) accidents, will cause you to pay higher rates.

The more tickets and accidents you have, the higher your rates may be. Non-driving matters such as cancellation for nonpayment of your auto premiums may also affect your eligibility. 

2. Your age, or length of driving experience

While companies are no longer allowed to rate a driver on sex or marital status, your age or length of driving experience still affects the cost of auto insurance.

Young drivers will pay more than those considered adults. Different companies set different ages at which drivers are considered adults.

3. Where you live

Insurance companies charge based upon the area in which you live. The insurance companies have found that more accidents are likely to occur in some areas than in others, and it costs more to settle claims in some areas.

4. Income

When insurance reimburses you for lost wages due to an automobile accident, some companies charge less if a person’s income is below a certain level.

5. Vehicle use

Different people use their cars for different purposes. Some people drive to work, and others drive only for pleasure. The less you drive, the less you may be charged for insurance.

6. The kind of car

Expensive cars cost more to repair or replace, and so collision and comprehensive insurance cost more. Also, some companies charge extra for sports cars or high-performance models.

How To Lower Your Insurance Costs

  • Keep your driving record clean. Don’t get tickets or cause accidents. Tickets and at-fault accidents on your driving record can drive your insurance costs way up.
  • Do you really need collision insurance? If you have an older car or one in poor condition, you may not want to pay the price for collision coverage. Call a bank or finance institution to find out the price you would get for your car on a straight sale. Take this price and subtract what you would have to pay (the deductible) if you had a loss. Then subtract the cost of insurance for one year. The amount you come up with is the total you would actually net if your car was totaled. 

Other types of insurance protection that are probably unnecessary include: 

  • Glass breakage coverage can add up to 20 percent to your comprehensive premium. When it’s not built into the premium, avoid it.
  • Medical-payments. They pay the deductibles and co-payments not covered by your health insurer or the insurer of any of your passengers. It also covers some funeral and rehabilitation costs. It’s not useful unless you face very high health-insurance deductibles. If your state requires it, buy the minimum.
  • Towing and labor only pay if you can’t drive your car away from an accident. Members of auto clubs with such privileges don’t need this coverage.
  • Rental insurance costs only a few dollars per year. But if you can depend on another car in a pinch, spare the expense.
  • Choose a higher deductible on your collision or comprehensive coverage. The higher the deductible, the less insurance coverage will cost. Be careful though to never have a deductible higher than you can swallow if you do have a claim.
  • Let your insurance agent know the safety features in your vehicle. Most insurance companies give you discounts for such safety features like airbags, theft alarms, and anti-lock brakes.
  • Coordinate any benefits from health or accident insurance with your auto policy. Some states have laws that require an insurance company to offer a discount on their insurance if you coordinate your other health insurance or sickness-accident benefits with your auto policy. To coordinate your sickness or accident benefits means that if you have an automobile accident, your auto policy pays you only for that part of your lost wages and medical expenses not paid by your employer or your sickness-accident insurance policy. Because your auto insurance pays less in claims, your insurance cost is lower.
  • Get a quote now. You may save money that way!

How To Shop For Auto Insurance

When shopping for auto insurance, do your homework first. It is in your best interest to shop around and select your insurer carefully. Your insurer should offer both fair prices and excellent service.

These tips will help you find the right insurer for you:

#1 Know your state’s auto insurance requirements

Most states require you to carry a minimum amount of liability coverage – coverage that pays for damages if you are at fault in an accident.

Many states have “no-fault” auto insurance systems. Coverage for medical costs for you and your passengers is optional in some states. Coverage for damage to your car is optional.

#2 Write up your personal auto insurance profile

List pertinent information concerning what type of vehicle you drive, where you drive, who else drives, what your driving record is, where you live, and what optional safety features your car has. This profile will make the next step easier.

#3 Read and understand your policy

Yes, read the fine print! Ask questions. Keep your policy at hand. Call your insurer to keep your policy up-to-date, inform your agent of any changes (new car, new job, new driver, etc.), and ask periodically about any possible discounts. Review your policy yearly with your insurer.

#4 Always keep your insurance information with you

Many states require drivers to carry a proof-of-insurance card with them when driving. Even if it isn’t required, it is always a good idea to carry it with you so that you have your insurance information if you ever had an accident. Ask your insurer for a card, and keep it in your wallet or in your car.