Shopping for car insurance is an infrequent aspect of the average American’s life. The process can be stressful, especially if you are not completely aware of how car insurance policies work. These are some important facts you should consider when shopping for your next car insurance policy.
Your auto insurance policy is a legal contract
It may seem obvious, but many people don’t consider the fact that their insurance policy is a legal contract. It states your responsibilities as a driver and the responsibilities of the insurance provider. Before signing any insurance contract, be sure that you have read the policy thoroughly to be fully informed about the nature of the agreement. Doing so will help you avoid confusion if you do need to file a claim.
How your car insurance rate is determined
All car insurance companies have set criteria for which groups of drivers they want to insure. When you submit an auto insurance application, the insurance company will evaluate it to identify how likely you are to make claims. If they find that you have a high potential to file claims, you may be placed into a greater risk category. In most cases, drivers who are deemed “high-risk” by the insurer will be subject to higher rates or outright denied by the insurance company.
These factors may affect the rates you are offered
Several factors help insurance companies determine how much they should charge each driver for an insurance policy. They include:
- Driving record
- Vehicle make and model
- Location
- Gender
- Age
- Marital status
- Prior insurance coverage and claims
- Vehicle use
- Credit score
Insurance prices vary greatly
The process that insurance companies use to determine the risk level of each driver varies from firm to firm. Therefore, the rate you are offered by one insurance company may be much higher or lower than the rate another company could offer you. The only way to be certain that you are receiving the best possible coverage at the lowest rate is to shop around and compare rates.
A higher deductible may lower your premium costs
When you are in an accident, you pay your deductible, then your insurance company covers the rest of your costs. If you opt to pay a larger amount of your damages through a higher deductible, the insurance company has less financial liability whenever you file a claim. Therefore, plans with higher deductibles often come with lower premium costs. Although lower premiums can be attractive, you must make sure you will be able to afford your higher deductible if you need to make a claim.
The extent of your coverage determines your policy’s costs
A comprehensive insurance policy will almost certainly cost more than a basic liability policy. Although comprehensive coverage may offer additional peace of mind as a tradeoff of higher costs, it may not always be necessary. For example, if you drive an older vehicle that would not cost much to replace, comprehensive coverage may be a waste of money.
Coverage for expensive vehicles isn’t always more costly
Some expensive vehicles have better claim rates for accidents and theft than cheaper cars. Therefore the premiums end up costing less. This highlights the importance of shopping around when you are choosing your auto insurance policy. Don’t just assume that your insurance policy should cost a lot because you have an expensive vehicle. Some insurance companies may calculate their rates differently.
Auto insurance follows the car, not the driver
If you allow someone else to drive your car, you are also allowing them to take advantage of your insurance policy. If they have an accident in your vehicle, your policy will be at stake, even if the driver has an insurance policy of their own for a different vehicle. Their mistakes could impact your auto insurance policy, resulting in increased rates or policy cancellation.
