There are so many myths and misconceptions about car insurance out there that many people make the wrong car insurance purchase for their particular situation. Here are the car insurance facts you need to know before you pay good money for the wrong policy.
Everyone Needs Car Insurance
Forty-eight of the fifty states require a minimum level of car insurance. In the two states that don’t mandate car insurance, they will hold the at-fault driver liable for all damages. These people will wish they’d paid for car insurance if in an accident, since expensive medical bills for their victim can land the at-fault driver in bankruptcy court. If you live in a state that mandates auto insurance coverage, you could get a ticket if you are found to be driving without it.
Car Insurance Doesn’t Cover Everything
Car insurance policies will cover damage to your vehicle, damage to someone else’s vehicle, and medical coverage for you and associated individuals in an accident. A minimal car insurance policy only covers property damage to your car and medical bills due to an accident; these cheaper policies won’t pay for damage to your vehicle caused by vandals, floodwaters or damage to the vehicle when you drove drunk and hit a tree. Insurers will typically pay the legal fees for defending you against a personal injury suit because they’re the ones that pay out if you lose in court.
Car Insurance Rates Are Based on Your Risk Level – and Risk Tolerance
Car insurance rates are based on the odds the insurer has to pay out. Some risk factors are obvious. Inexperienced drivers are more likely to get into a wreck than experienced drivers. A risky driver who racks up speeding tickets is more likely to get in an accident than someone who is a safe driver. Drivers who take defensive driving classes are less likely to total a car. Where you live affects your rates, since areas with more traffic accidents and car theft mean your vehicle is at greater risk of being damaged.
The more you drive, the higher your rates, as well. Pay-per-mile insurance lets you pay a low monthly rate and then a modest rate per mile you drive. Just be aware that the dongle plugged into the car’s computer to track how far you drive may track other driving habits like how hard you brake or hit the curb. Then it may lead to higher insurance rates than you previously paid.
Another risk factor in the analysis is the cost to repair the car. More expensive cars typically cost more to fix if they’re in a wreck. This is why your little beater costs less to insure than a luxury car, assuming the cheaper car isn’t in its sad state because you were in a couple of wrecks.
One way to lower the odds an auto insurance company has to pay out is to increase your deductive, how much you have to pay out before the insurance policy kicks in. If you have a $500 deductible, then you’re going to pay for the minor fender bender out of pocket, but the insurance company will pay money toward the cost of repairing the crunched rear end. If you have a $1500 deductible, you’re going to pay for almost every minor accident out of pocket, but insurance continues to provide coverage if there is a serious wreck or major medical bills. Because you are going to pay for the smaller repairs, the insurer is less likely to have to pay claims on your behalf. This lowers your risk and your premiums.
Car insurance companies don’t do a personality test to determine your insurance rates, and while one company tried to mine Facebook for information on people to gauge their personality, that idea was scrapped.
Car Insurance Is a Contract
An insurance policy is a contract. You’re agreeing to a number of terms and conditions in exchange for insurance coverage. If you don’t pay your premiums, you no longer have coverage. If you lie on the insurance application or violate the terms of the agreement, you may no longer have auto insurance.
You Can Cut Costs – a Little
Insurance is a consumer product. You can and should shop around for a better deal. You can’t negotiate, but you may be eligible for discounts. Ask about saving money by consolidating insurance policies with the insurer. If you pay your premium in one annual lump sum instead of quarterly or monthly, you could save a little because of their reduced administrative costs to manage your account.
Be careful of choosing only third-party coverage, though, since insurers have learned this is a common choice by high-risk drivers to keep costs low … so they’ve raised their prices.