Getting new car insurance is an essential part of owning a vehicle. However, the process can be stressful when you don’t have all the information you need. The decision-making for an auto insurance process is clouded by myths and long-standing misconceptions about how insurance works.
Whether you’ve just purchased your first vehicle or shopping for a new car, knowing these five insurance facts will make you a more intelligent consumer:
1. A Cheaper Car Doesn’t Always Mean Cheap Car Insurance
Your car insurance cost depends on many factors, including the type of car and how expensive the car is. Typically, more expensive vehicles often cost more to insure. However, this is not always the case. Some cheaper vehicles have insurance rates as high as high-end cars.
The best way to find great coverage is to review coverage options and prices from top insurance companies. Why do some cheap cars cost more to insure? The reason is not far-fetched. According to the Ascent, insurers consider historical claims for each model and make of the vehicles. For instance, if a specific type of vehicle has a history of many claims, insurers will start to regard it as high risk.
You might have to pay more insurance for a car if it is involved in more accidents than most cars. Other reasons could be if the vehicle is often a target of car theft compared to other vehicles or people tend to sustain more severe injuries when they’re in a crash.
If a cheap car falls into this high-risk category, it probably lacks safety features and technology that can help avoid accidents. These types of vehicles are also usually small with less sturdy frames.
Insurance companies consider all this data during the underwriting process. If people are prone to more injuries in a cheap car than if they had been in an expensive SUV or truck, then the vehicle will typically cost more to insure. So you might be charged more for coverage if you have this type of high-risk vehicle, even if the initial payment is relatively cheap.
2. There Are Ways to Pay Less for Insurance
A report reveals that the average driver spends $1,190 on car insurance in a year. This suggests that you may need to include at least $100 per month for auto insurance as you budget for a new car. However, there are ways to minimize your insurance costs, one of which is to have a good driving record.
Here are other ways to cut your auto insurance cost:
- Shop Around: It’s best to shop around and get price quotes. You can also call companies directly or access information on the internet. Some state departments may also provide comparisons of prices charged by major insurers. Alternatively, ask relatives and friends for recommendations. Talk with an agent or company representative that takes time to answer your questions. Some insurance companies like Progressive Direct Insurance have a car insurance calculator to help you have an idea of what you might have to pay.
- Choose an Insurance-Friendly Car: Compare insurance costs before buying a new car. Insurers calculate car insurance premiums based on the car’s price, the repair cost, its overall safety record, and the likelihood of theft. Your insurer may offer discounts for vehicles with features that reduce the risk of injuries or theft. To help you choose a car, you can get information from the Insurance Institute for Highway Safety.
- Ask for higher deductibles: Deductibles are the payments you make to your insurer before your insurance policy kicks in. You can lower your costs substantially. However, ensure you have enough money to pay if you have a claim.
- Maintain a Good Credit Record: Most insurance firms use your credit information to price auto insurance policies. Pay your bills on time to protect your credit history, and don’t obtain more credit than you need. Ensure your records remain accurate by checking your credit report regularly and fixing any errors promptly.
- Reduce Coverage on Older Cars: If your car is worth less than ten times the premium, getting coverage may not be cost-effective. It would be best to consider dropping comprehensive or collision insurance on older cars. Review your coverage at renewal time to make sure your insurance needs haven’t changed.
- Get Informed about Group Insurance: Some insurance companies offer discounts to drivers who get insurance through a group plan from their organization, alumni, or business groups. Ask your employer or professional groups if this is possible.
3. Car Insurance Generally Follows Car, Not the Driver
Contrary to popular belief, car insurance follows the car. If you lend someone your car and there is an accident, your policy’s liability coverage will cover them. However, many factors may determine whose car insurance kicks in if someone else gets your car crashed.
According to the Insurance Information Institute, insurers would consider your vehicle insurance the primary source if someone else wrecks your car. The coverage you’ve chosen on your policy would help cover the damages caused by the accident.
As a result, if the insurance company confirm that someone else driving your car is at fault, here’s how your policy’s coverage may help:
- Auto liability coverage: As the name suggests, liability means legally responsible for something. In-vehicle insurance, penalty entails injuries and damages that you cause to a vehicle or others during an auto accident. If you’re liable, car liability insurance may help pay for another person’s damaged car or your medical bill that resulted from the accident. Your liability insurance would not pay for your friend’s medical bills or repairs to your car. This is because you’re not responsible for the accident.
- Collision coverage: Collision coverage may help pay for repairs to your damaged vehicle or replace it. This coverage also helps with the cost of repairs if you hit another object or vehicle. That means you can use it whether you are at fault or not. However, you have to pay your deductible in full first before this insurance kicks in.
- Medical Payments Coverage: In the event that the person driving your car gets injured in an accident they caused, medical coverage may help pay for their medical bills.
4. Collision Coverage is Different from Comprehensive Coverage
The main difference between comprehensive and collision auto insurance is that the latter covers accidents out of the driver’s control. On the other hand, the events of the former cover within a driver’s control or when another driver or object causes damage. You can only buy collision insurance as an extension of liability or comprehensive coverage.
Collision and comprehensive insurance are two essential components of good auto insurance. They cover aspects that liability doesn’t address – pay for damage to your car or compensate you for car theft.
Collision insurance covers you if you damage your car by hitting an object or another vehicle. Comprehensive insurance goes beyond that. It covers non-crash damages such as fire and weather. It also compensated you for car theft or collisions with animals. Both types of coverage are vital, and insurance companies often sell them together as a package. According to Forbes, 74% of drivers with auto insurance buy collision coverage, and 78% purchase comprehensive insurance.
When Can you make a collision or comprehensive claim?
Collision claim examples:
- You swerve to avoid hitting an animal and hit the pole.
- Someone hits your car and drives off
- Your hits a wall as a result of sliding on ice
Comprehensive claim examples:
- You’re a victim of car theft, and you can’t recover your vehicle
- A fire accident in your garage damage your vehicle
- A hail storm damage your car
For both coverages, the maximum payout is the value of the car before the accident in case it was totally damaged minus the deductible. If you’re financing or leasing your vehicle, your lender typically requires a collision or comprehensive coverage. It becomes optional if you’ve paid off your car.
5. Personal Auto Insurance Doesn’t Cover Using Your Vehicle for Commercial Activities
A personal car insurance policy will typically not cover accidents that occur during business activities. It’s best to get a separate insurance policy or supplement to ensure activities like using your vehicle to deliver pizzas, driving for a ride-sharing transportation company. This also includes running any delivery service or hauling equipment to a job site.
Commercial car insurance protects your business from the costs of accidents in your company-owned cars. Like personal auto insurance, commercial auto insurance is a necessity in many states, and you can purchase it as auto liability coverage only or in combination with collision or comprehensive coverage. This type of insurance covers any employees who use the company vehicle with your permission.
Having your facts right about car auto insurance is crucial. It would be not to assume that your insurance will cover any accident or damage. For instance, some policies don’t cover relatives living in your home unless you specifically name them on your policy. Other policies only provide limited coverage. These five car auto insurance facts will help simplify your decision-making regarding vehicle insurance.