You may have had car insurance for years, but how much do you really know about your coverage? We wanted to take an opportunity today to explain some of the basic facts of car insurance and give you a brief overview so you can understand what exactly goes into determining your coverage.
How Is Your Car Insurance Rate Determined?
Your price is determined by many different factors, including your credit history, your driving history, and your claim history, to name just a few. Different companies will give varying weight to each factor, which is why you get different results from different companies when shopping for an insurance rate.
Why does an insurance company look at your credit history? Insurance companies use this information to determine how likely you are to file a claim. In states where it is legal to use credit history to determine risk, bad credit can raise insurance rates considerably. Credit history is just one piece of information an insurance company uses to help determine risk. And that’s after all what the business of insurance is all about–risk management.
If you use your car for work, does your average insurance policy cover accidents? Short answer: Probably not.
How is your insurance rate determined? Your vehicle, your age, marital status, credit rating, gender, home address, driving record, past accidents, and any tickets you may have all determine the cost of your coverage. All these pieces of information work together to paint a picture of what your overall risk and cost to an insurance company are predicted to be.
How you use your car is also a factor in determining your rate. Do you use it daily to get to and from work? Is it just a fun vehicle you take out on the weekend? The less you use it, and the shorter distance you travel, the less your insurance rate will be. What about if you use your car as one of the tools needed to complete your job? If you use your personal vehicle for work, you may not have full coverage, or you may need to purchase a supplement to a regular auto policy.
For example, let’s say you use your van to deliver newspapers part-time in the early morning, and you got in an accident with another vehicle. Depending on the specifics of your policy, you most likely will not have coverage for this accident.
Why not? Most car insurance policies are written so that if you are using your car to make money, instead of for personal use, then only a commercial policy would cover for an accident while “on the job.” Make sure to check your insurance policy to make sure you have the coverage you need.
There Are Many Different Types of Coverage
Does your car insurance policy allow you to fully recover your vehicle after an accident? You may be surprised at what you find out…
When asking yourself what kind of car insurance you need, it’s helpful to know there are different kinds of coverage that make up the average auto policy. Your policy may contain some coverages and not others, so it’s always important to read your policy very carefully. The following are some different types of coverage you can obtain (your state may offer or require additional coverage as well).
Liability coverage: This covers payments to others when you are determined to be the “at fault” driver in an accident. This covers bodily injury, property, and car damage for the other person. It also covers the cost of a lawyer if you need to defend yourself or if you are sued for damages you cause.
Property Damage Liability: This pays for claims and lawsuits from people whose property is damaged as a result of an accident you cause.
Bodily Injury: This pays for claims and lawsuits by people who are injured or die as a result of an accident you cause. The industry standard for bodily injury coverage is $100,000. Many people choose higher limits such as $100,000 per person/$300,000 per accident to get the most protection for the best value. However, you might want more or less depending on what state you live in.
Medical Payments: Some states have an alternative to medical payments coverage called Personal Injury Protection, or PIP. Some states, like Texas, offer both options, but this kind of coverage varies widely by state. Medical Payments coverage is for medical bills for any covered driver on your policy (including yourself) as well as any injured passengers in your vehicle. This can also cover funeral costs if necessary. Sometimes this protection is also called “no-fault” because it pays for medical expenses regardless of who caused the accident. Additionally, this can also cover reimbursement of certain expenses you may have as a result of being injured, such as lost wages.
Uninsured motorist coverage: This coverage enables you to receive payments for injuries and property damages if you were hit by an at-fault driver who had no insurance.
Underinsured motorist Coverage: This coverage enables you to receive payments for injuries and property damages if you were hit by an at-fault driver who is insured, but for less than the actual cost of the damages, or less than your underinsured motorist coverage on your policy.
Comprehensive Coverage: This pays for damage to your vehicle that is not the result of a collision, such as theft, vandalism, flooding, or fire. It will also pay if you hit an animal.
Collision Coverage: When your vehicle is damaged in an accident, this coverage pays for repairing or replacing your vehicle, minus your deductible.
Rental Reimbursement: Covers the cost of a rental car while your car is being repaired after an accident.
Roadside Assistance: Helps you if your car breaks down on the road. Covers things like towing, battery service, flat tire service, fuel delivery, and lockout assistance.
What Type of Coverage Do You Need?
Not all states even require you to have car insurance.
If you pay a fee of $500 (per vehicle) in the state of Virginia, then you are not required to have an insurance policy. In New Hampshire, you need to prove that you have the financial ability to pay for damages in the event of an accident, and if you can prove that, you don’t need insurance either.
Most other states do require some type of car insurance coverage to drive a car on the road. However, some states’ requirements are far below what you might actually need if you were to get into an accident. This is why it is so important to read your policy carefully or ask your insurance agent any questions you may have.
And it’s always a good idea to ask about discounts. At Effective Coverage, we search through multiple carriers to guarantee you the lowest rate possible. Contact one of our talented car insurance professionals with any questions you may have at (800)892-4308 or click to get covered- whether you need auto insurance quotes online or coverage anywhere else! Representatives are available to answer questions during weekdays from 9a-9p EST, and weekends 10a-4p.
Effective Coverage also offers the nation’s only completely mobile platform to quote and purchase renters insurance right from your phone or tablet in just one minute. Get an online renters insurance quote today and protect your family.
Cover Photo Credit: Nicolai Berntsen
Article Photo Credit: Tommy