How does where I live affect my premium?
Where you live (or, more precisely, where you keep your car) has a bearing on your chances of having an accident or becoming a victim of theft or vandalism. That’s why a vehicle owner in Los Angeles, California pays a higher rate than the owner of an identical vehicle in Nampa, Idaho.
Other factors affecting regional insurance rates include time and efficiency of police response and law enforcement, local road and traffic conditions and the quality of local medical services. Insurers even factor in the litigation rates in a given area, that is, how many lawsuits are filed, go to trial, are settled out of court and for how much.
What are the different types of policies and what do they cover?
Auto insurance is divided into several types of coverage:
General liability covers damage you cause to other people’s property and injuries to the people themselves.
Collision covers damage to your own vehicle in an accident.
Comprehensive (i.e., fire, theft and other non-collision damage) covers fire damage to your vehicle, break-ins, vandalism or theft, as well as natural disasters (earthquake, hail, hurricane, flood, etc.–unless the vehicle is overturned, then it is considered a collision).
Medical payments insurance, usually in the range of $5,000 to $10,000, covers medical expenses for injuries. This “good-faith” coverage guarantees immediate medical payments for you, your passengers and other parties, regardless of who is at fault. It also covers you and members of your household in any accident involving an automobile, whether you are on foot, on a bicycle, in a friend’s car.
Uninsured motorist (UM) and underinsured motorist (UIM) coverage protects you if you are injured in an accident with others who themselves carry insufficient or no liability insurance.
Extra coverages include expenses for towing, labor, temporary replacement vehicles, etc. These are generally defined as add-ons or “endorsements” to your policy.
Why and how are policies priced for different drivers?
Drivers are grouped according to the level of risk each one poses—i.e., the amount of loss incurred by insurers within categories of policy holders. For various reasons, drivers are categorized by:
The cost of your insurance policy is based on the average cost of covering actual losses, spread out over your particular “rating group” as a whole. Of course, you may never have an accident or have your car stolen, and therefore will never need to be compensated. But others in your category may not be so lucky. Your premium will help to pay for their losses, just as their premiums would help to pay for yours.
For example, if you are a 23-year-old man and you park your new sports car on a downtown street in a large city, you will likely pay more for insurance than a 37-year-old woman who parks her four-wheel-drive in the suburbs, simply because, based on average losses, you have a greater chance of having an accident or being the victim of auto theft.
Sex—Men have more accidents on the road than women.
Age—Drivers under 25 (and, for some insurers, under 30) are considered at higher risk of having an accident.
Marital Status—Married drivers tend to have fewer accidents than single drivers.
Personal Driving Record—Years of driving experience, accidents, speeding tickets and drunk-driving offenses are all factors in determining how much of a risk you pose as a motorist.
How You Use Your Vehicle—If you commute by car during rush hours, you’re at greater risk of having an accident than if you only drive for errands and recreation on the weekends. Drivers who use their own vehicles for business also are considered to be at greater risk.
Type of Vehicle—The value, size, weight, age of your vehicle, even the cost of replacement parts, are essential to determining the price of your insurance. Larger, heavier vehicles are considered at lower risk than smaller, lighter ones. Plus, more expensive cars are costlier to have repaired than economy models.
Why are rates different for different cars, even if the cars cost the same?
Vehicles are also grouped into categories according to their likelihood of being damaged, vandalized or stolen. Insurers generally consider the size and type of vehicle, as well as the value and the cost of repairs (which can vary greatly, even on vehicles that cost roughly the same). Thus, a new station wagon is expected to hold up better in an accident than a sports car or a subcompact.
Putting insurance aside, safety is key when buying an automobile. Your life depends on it! Some cars are considered safer than others because of their performance record in safety tests and real accidents.
That’s why you should research insurance coverage before you buy your car. It helps you to understand the actual cost and indicates those vehicles with good safety records. Your insurer will ultimately reward you for putting safety first.
Why do I need auto insurance?
Your car is likely one of the most expensive things you own. Insurance protects your investment and guarantees you a way of coping with the expense of accidents, vandalism or theft. It also secures your financial responsibility to the institution lending you money to buy your vehicle.
When you drive you are responsible for the safety of your passengers, your fellow drivers, other people’s property, pedestrians and yourself. Insurance helps ensure your ability to cover the costs of potential damages or injuries.
You are also required to be financially responsible by state laws, which are best satisfied through your insurance coverage. In most states insurance is a prerequisite to registering your car. So if you want to drive your own vehicle, you must be insured.