A look at some of the different types of auto insurance available, as well as information on insurance rates, how insurance works, and what can change the amount you have to pay.
These days, auto insurance is one thing that you absolutely can’t get by
without. All states require at least liability insurance, and in many places
more coverage than that is needed. Fines of $500 and up await if you’re caught
driving without insurance, as well as the possibility of jail time. As
expensive as being insured can be, it can end up costing you more if you’re
not.
Exactly how does auto insurance work, though? What are the different types
of coverage, and what affects the rates that you pay? There are a lot of
companies that want your business when it comes to insurance, but none of them
seem to cover the basic questions that many consumers have in their advertising
materials.
What are the
different types of auto insurance?
Just like there’s more to ice cream than chocolate and vanilla, there’s more
to automotive insurance than just liability and full coverage. Even those
terms, though, are tossed about freely while many don’t have a good
understanding of what they entail.
Liability
Liability insurance is usually the minimum that’s required by law, though
the amount of liability insurance that you have to have tends to vary from
state to state. Basically, liability insurance pays for the damage that you’re
liable for, up to the amount of coverage that you have. Any additional damage
that’s caused is going to have to come out of your pocket.
Full coverage
As the name implies, full coverage insurance covers everything. Your premium
will be much higher with full coverage, but the insurance company will cover
all of the repairs associated with the accident. There may be some additional
out-of-pocket expense, but it will be minimal; after all, that’s what you’re
paying the high premiums for.
Uninsured driver insurance
Usually, if you’re in an accident that’s caused by another person then their
insurance will pay for any damages. Unfortunately, if they don’t have insurance
then you might be looking at expensive repairs and the money will have to come
from somewhere. Uninsured driver insurance is designed so that if you’re in an
accident caused by someone else and they don’t have insurance, you don’t have
to foot the entire bill for their mistake. (Of course, they’ll have enough
problems to deal with… steep fines and other penalties will be coming their way.)
Passenger medical
Not as well known as other forms of insurance, passenger medical covers the
expenses of any injuries that are caused to car passengers in an accident.
Often the policies come in coverage levels of $50,000 to $100,000 or more, and
are designed to ease the costs for people who are injured by no fault of their
own in automotive accidents.
What factors effect
how much I pay?
There are a lot of factors that can effect the amount that you’ll pay for
your car insurance (also known as your premium.) Some of them cause you to pay
a higher premium than others, and others entitle you to a lower premium. If
you’re applying for a new policy, expect your insurance company to check all of
these factors before making a decision; if you’re renewing or changing a
policy, they might check some of them or they might not.
Who you are and what you drive.
Insurance companies look at statistical averages to try and judge what type
of a driver you’ll be. If the statistics say that people of your age, gender,
or race are better drivers, then you will stand a good chance of getting a
lower premium. If the statistics tell a different story, then you can expect to
pay a little bit more. The same goes for the area that you live in, as well as
the car or truck that you drive. (Sometimes, even the color can be a deciding
factor…drivers of certain car colors at least have a reputation of being more
reckless and speedy than others.)
The amount of coverage you want to buy.
Obviously, if you want full coverage insurance you’re going to pay more than
if you just purchase basic liability. On the flip side, if you have several
vehicles covered by a more expensive insurance with the same company, some
insurance companies will actually offer you discounts (as somewhat of a loyalty
incentive.) Check with your insurance agent to see of their agency offers any
sort of discounts for multiple vehicles at a certain coverage level.
Who’s driving, and how they drive.
Another big thing that will be looked at when buying car insurance is your
driving record (as well as the driving records of anyone else who will be
covered by the policy.) Along with the coverage level that you’re buying,
driving records are actually one of the biggest factors in determining exactly
what your premium will be. If you have a clean driving record, you should be
eligible for “good driver discounts”, which is a reward for driving safely and
obeying traffic laws. If, on the other hand, you have multiple speeding
tickets, traffic infractions, and accidents (especially in a short period of
time), then there’s a good chance you’ll be looking at higher insurance rates
(and possibly trouble finding an insurance agency that will cover your car or
truck.) Teenage and young drivers also face increased scrutiny, and usually pay
much higher rates for car insurance than drivers over the age of 25. Good
grades, driver’s education classes, and other programs that vary from company
to company can reduce the amount that young drivers have to pay, however.
What causes rate
changes?
A sad truth with any form of insurance is that the more you need it, the
less that insurance agencies want your business. If you have enough problems
with accidents, speeding, and other traffic violations, then you might be
dropped by the agency… more likely, though, you’ll just be facing increased
insurance rates. A variety of different factors can cause rate changes,
however, and not all rate changes are bad.
Accidents
Obviously, if you’re in an accident then your insurance company is going to
have to pay for it… after all, it’s what insurance is there for. That doesn’t,
however, mean that they’re going to be happy about paying for it. Accidents
that you cause will almost certainly result in an increase in your premium, and
multiple accidents over a short period of time may result in the termination of
your insurance policy altogether. You should note the key phrase here is
“accidents that you cause”, because if the accident is someone else’s fault
then it’s their insurance company that’s going to have to pay. You should be
aware, though, that many states split the “fault” of the accident, and “no
fault” states are becoming fewer and fewer… and if you’re in multiple accidents
in a relatively short period of time (even if someone else causes them), you
may see a rate increase because your auto insurance provider may think you’ve
been driving recklessly.
Speeding or other traffic infractions
Even though it doesn’t cost them a dime, car insurance agencies do tend to
increase your premium if you are caught speeding or breaking other traffic
laws. The more “points” you have on your driver’s license, the more you’re
likely going to have to pay for insurance. The reasoning behind this is that if
you’re driving recklessly or with disregard to traffic laws, then you’re much
more likely to eventually get into an accident… and if they’re going to have to
pay, then so do you. Some insurance agencies don’t keep as close of a watch on
your driving record than others, but all of them will review your driving
habits from time to time.
Modifying your policy
Adding additional drivers, adding or removing vehicles, or changing your
coverage level can all cause changes in your car insurance premiums. Obviously,
adding additional drivers or vehicles (or increasing the amount of coverage
that you want) will result in higher premiums, but sometimes moving to a new
car that tends to be cheaper on insurance can cause you to have to pay a little
more up front. Even if the end result is a lower premium, making changes to
your insurance policy in the middle of a term can cause you to be billed for
service charges or differences in rates. (You’ll make it up in the lower
premium, however.)
Where is my policy
valid?
American auto insurance policies are good anywhere in the United
States, Mexico,
or Canada. Some
policies differ a bit on coverage in certain states, however, and liability
laws in Mexico
tend to be a little different than those in the US.
If you’re traveling overseas or to South America, then
you might want to look into getting insurance in the country that you’ve
traveled to for the duration of your visit since insurance laws vary from
country to country. When traveling out of the country, is usually best to rent
a car and pay the additional amount for insurance through the rental agency…
that way you know that the policy you have is valid in the area you’re in, and
should the worst come to pass the place that you rented the car from will take
care of all of the details.