Car insurance rates never seem to stop reaching for the top. Is it for a good cause, or is your insurance company charging you unnecessarily?
In this article, you will be taken through the basics of car insurance and show you factors that determine your insurance rates and the reasons your car insurance may be high.
What is car insurance?
Car insurance is a policy you purchase through your insurance company to protect you from financial loss in case of an accident or theft. Car insurance also covers liability, property, and medical costs. Your auto insurance policy can also extend protection and coverage to your immediate family members. Auto insurance policies vary depending on your policy. In most cases, car insurance will cover damages and loss caused by your car and not to your vehicle. You may need to include optional coverages into your policy to take care of your vehicle. Car insurances are a legal mandate in most places.
How does car insurance work?
As stated earlier, your car insurance will safeguard you from financial loss in the event of an accident or theft. Upon agreement, your insurance company will cover repairs, medical expenses, damages caused to another driver unless you were opt-in for additional coverages.
Most common types of car insurance
According to Progressive.com, the most common types of auto insurance include
- Liability Coverage: Auto-liability coverage covers damages caused or injuries inflicted on drivers or passengers resulting from an accident that you caused. In most cases, this policy has a minimum limit of premium you can buy in the case of any road contingencies. However, most financial experts would advise you to pay a premium slightly above the policy limit to protect you from exceeding your limit and bearing the additional cost. Quite frankly, this also comes at a Price.
- Collision Coverage: A collision coverage policy will cover the repairs of your car, but if your motor has been severed, the collision policy will only cover the value of your auto, especially if the repairs cost way more than your car is worth. This policy is more suitable for you if you own a new vehicle or possess a lienholder.
- Comprehensive coverage: Not all auto policies cover just accidents like the collision and liability policies. A suitable example of one of such policies is comprehensive coverage. This insurance policy guarantees coverage for other contingencies like theft, damage caused by weather, or an animal. If your vehicle is thieved, tracking devices may help you reduce coverage costs. If not, purchasing this policy may cost you more than your budget. If you are not thinking of replacing your car anytime soon, you can handle the budget; this policy is for you. However, for lienholders, this coverage is mandatory.
- Medical payments/ personal injury protection: If purchasing other policies are optional, Medical payments policies are necessary. Also known as the personal injury protection policy, it renders coverage for medical bills of you and other injured persons in the case of a disaster.
- Uninsured/Underinsured Motorist Bodily Injury (UIM) and Property Damage (UMPD): In somecases, low-income earners might not have the luxury of purchasing car insurance, those that do may also not be fully insured or maybe given minimum coverage- depending on your state. So what happens if an uninsured or underinsured motorist is responsible for damages?
Uninsured and Underinsured Motorist Protection covers you.
Things to know about car insurance before buying
Below are three basic things you need to know about car insurance before buying:
- How costs are determined: Many things influence the cost of your car insurance. The earlier you know them, the easier it becomes to make smarter car insurance decisions. In the next section, you will become familiar with things that determine the cost of your car insurance.
- The differences between one insurance coverage from another: You can buy or pay for coverages you do not need. This occurs when you cannot differentiate between one coverage plan from the other.
- Car insurances must be renewed as long as you do not want to cancel your policy plan.
What makes your car insurance high:
Determinants of motor insurance rates
It is important to note that not all determining factors can be controlled.
1. Misinformation: Misinformation is caused by the following;
- Refusal to seek advice before purchasing a coverage policy
- The assumption is that you are aware of insurance rates and discounts.
- Refusal to find out everything you need to know about your insurance company
- Refusal to compare and contrast insurance companies
- Refusal to ask questions when unsure
- The assumption is that you know and understand all the terms and conditions in your contract.
2. Coverage Policies: Before purchasing any coverage policy, you must be conversant with your insurance company, your car type, the age of your car, the model of your auto, and so on.
- Your Location: Your location will go a long way in determining insurance rates. In some states, rates are higher than in other states due to environmental factors, accident rates, population, and demography.
- Age, Sex, Marital status: Insurance companies set the following as a yardstick in determining the rate of insurance. They do this from the statistics at hand.
- Credit score: There’s a limit to how much risk your insurance company is willing to take o your behalf. High credit history will signal risk to your insurance company, which signals a high insurance rate.
- Your car: According to Esurance, your car type, model, make, style, and age go a long way in determining the insurance rate.
- Using your car for commercial purposes: Because most insurance policies do not cover commercial purposes, if you fall into this category of people, you may have to bear the cost on your own
- Coverage Lapse: It is always advisable to renew your policy before it lapses. Failure to do so may incur a higher insurance rate.
- Your insurance company and its insurance rates: Find out all you need about your company and its insurance rates. You must weigh your choices and ask for discounts. Do whatever you must to make sure you get the best.
- Purchasing different policies from different insurance companies: An insurance company will give you multi discounts provided you buy multiple premiums from them. It is even more reasonable and affordable as opposed to buying premiums from different insurance companies.
- Refusal to make use of higher deductibles: This is straightforward! The higher your deductible , the lower the premium, the lower your deductibles, the higher the premium.
- Lending your car to someone who isn’t aware of your insurance rates may land you into trouble that your insurance might not cover.
References
- Willimington, DE (2012, January) 5 types of car Insurance. Retrieved from tps://www.21st.com
- Interactive Education concept Inc. (2022) 10 things to know before buying an Insurance. Retrieved from https://www.myimprov.com
- Chris Muller (2022 February 2) Why is my car insurance so high? ( and how can I reduce my rates). Retrieved from https://www.moneyunder30.com
- Progressive Casualty Insurance Company(2022) How does car insurance work. Retrieved from https://www.progressive.com