A huge part of “adulting” is taking out your very own insurance policies. The moment you become a grown-up, you’ll find that you need all kinds of insurance like auto, homeowner’s, health, life, and more. While we often focus on getting the lowest price, few people take the time to actually learn that much about how insurance works and what it does for you. Here are some of the most important things you should know about auto insurance that can save you money to get you started on the right track.
What Is Auto Insurance And Why Do You Need It?
Life is risky, and driving can be dangerous. The best way to mitigate or lessen the risk is with insurance. Car insurance protects you financially in the event you cause an accident. Car insurance is so important that state governments regulate and enforce it. Almost all 50 states require a minimum of liability coverage for anyone to drive a car legally.
Insurance companies pool everyone’s money together and use it to payout claims. Not everyone will have an accident, so even though you are only paying $1,427 a year (the national average), there is plenty of money in the pool to cover many times that amount if you have a terrible accident.
Causing an accident when you don’t have auto insurance will not only generate fees and other legal punishments but will leave you on the hook for paying for all the damages and injuries.
Common Types Of Auto Insurance Policies
While a minimum liability policy will allow you to drive legally, it’s probably not enough coverage for most people. Luckily, there are several types of policies that offer you much more protection.
Liability Insurance: Each state will require a slightly different minimum amount of liability insurance you must carry. Liability coverage only pays claims for the party that you hit in an accident. It will have minimum amounts it will pay for medical and property damage. It will pay nothing towards your own injuries or vehicle repairs.
Collision Coverage: If you want help paying for your own damage after an accident you cause, then you’ll need collision coverage. This policy will pay to fix or replace your car and extends to collisions with objects like trees or fences, and even accidents that don’t involve another object such as car-flipping.
Comprehensive Coverage: Sometimes, damage to your car isn’t caused by an accident. Comprehensive coverage will help pay for repairs or replacement if your car is stolen, vandalized, or damaged by weather and falling objects. Full Coverage Auto Insurance: You might have heard the term “full coverage” when talking about auto insurance. This isn’t a specific policy; it’s industry shorthand for stating that a person has liability, collision, and comprehensive coverage. Full coverage is best for most people. If you’ve purchased your car using financing, the bank will require you to carry full-coverage auto insurance until the car is paid in full.
How Are Car Insurance Premiums Calculated?
Car insurance premiums are based on risk calculation and statistics. Many personal factors go into calculating your premium. It’s not uncommon for you and your neighbor to have very different premiums. Here are the most critical factors that can impact how much your car insurance will cost you.
●Personal Factors: Your age, marital status, and sometimes even your gender can help determine your insurance premiums. For example, teen drivers are extremely high risk and experience the highest premiums. Meanwhile, middle-aged married drivers statistically have fewer accidents and enjoy the lowest rates. Some states have stopped allowing gender to be considered, but when it is, men typically pay slightly lower rates than women.
●Vehicle Information: Unsurprisingly, brand new cars cost more to insure than used cars. If you have an expensive luxury car or a vintage car, you will have higher premiums. You can lower premiums by driving a car with safety and anti-theft features.
●Location: Where you live will play a significant role in calculating your premium. Population density causes more traffic accidents, areas with high crime rates make theft more prevalent, and some areas are more prone to severe weather conditions than others.
●Credit Score: This one might surprise you, but your credit score can have a major impact on your premiums. Poor credit has been associated with a higher rate of accidents; therefore, you’ll be charged more for being high-risk.
●Driving Record: If you have already had accidents or speeding tickets, then your premiums will be higher. Accidents and tickets can stay on your driving history for five to seven years. A DUI will not only drastically increase your premium but could cause you to lose your coverage with your current company.
●Insurance History: The type of policy you choose, including the amount of coverage and price of the deductible, will help determine your premiums. If you’ve ever let your insurance lapse for non-payment in the past, you will also have to pay higher rates.
What You Can Do To Lower Your Premiums
The best method for obtaining the lowest rates on auto insurance is to comparison shop by gathering quotes from multiple insurance agencies. Not all insurance companies charge the same because they all weigh risk differently and offer different discounts. You can get quotes online, by phone, or in-person from the companies themselves or from insurance brokers. To lower your premiums, try these tips:
●Drive used or less expensive cars.
●Work to improve your credit score.
●Take a defensive driving course.
●Avoid accidents and drive the speed limit at all times.
●Choose a higher deductible in exchange for a lower monthly rate.
●Take advantage of discounts that apply to you, such as accident-free, good grades, specific professions, safe-driver, and others.
●Prepay your insurance annually for up to 20% savings at many companies.
The better you understand how car insurance works, the easier it will be to identify ifyou have the right coverage and the best cost. Having the lowest premiums isn’t the only factor to consider in choosing auto insurance. Make sure that you also check reviews on claims payment and customer service to make sure that you’ll be happy with your service.