Whether you shop online or use an agent, buying a cars insurance policy is complicated.
While the internet makes it easy to compare policies and rates, it is still easy to get confused by all the unknown terms and the use of jargon insurance companies. The decision making process is also blurred by a long-standing misunderstanding – or myth – about how insurance works.
For example: Many people mistakenly believe that red cars are more expensive to insure.
“That’s not the problem. What drives rate increases are things like speeding and accidents, “said Loretta Worters, vice president of media relations at the Insurance Information Institute. “So, if you have a red car and you accelerate and get a ticket, or have an accident, that is the reason for the rate increase, not because you drive a red car.”
Insurance companies consider many factors about vehicles when setting their premiums – including brand and model, age, body type, engine size, repair costs and the possibility of being stolen – but not color.
Here are seven things you should know about car insurance.
1. How the price is determined
Each insurance company has its own formula for calculating premium prices, but they all tend to use the same basic factors. This includes the obvious, such as the make and model of the car, how you use the vehicle (for example, do you drive during travel hours?) And your driving record.
Other factors that enter the mix include:
- Your age, gender, and marital status: Statistics show young drivers (with little experience behind the wheel) and male drivers are more likely to have an accident. Married drivers, on the other hand, are less likely to file accident claims.
- Where you live: Someone who lives in an urban area with a high crime rate is likely to be considered at greater risk than a policyholder in a rural area with less traffic and less car theft and burglary.
- Your credit score: In many countries, insurance companies can consider a credit score when calculating premiums. Industry says data shows that drivers with better credit have fewer accidents. Consumer advocates believe this unfairly punishes low-income car owners and they want the practice to be banned.
2. The difference between a collision and comprehensive coverage
When it comes to car insurance, this is probably the biggest area of confusion. It seems that many people do not understand what they are buying.
A recent survey by InsuranceQuotes found that 68 percent of Americans wrongly believe that a comprehensive part of their policy includes damage to their cars due to collisions.
According to the Insurance Information Institute:
- Comprehensive: Provides protection against theft and damage caused by incidents other than collisions, such as fire, flood, vandalism, hail, falling rocks or trees, or crashing into deer.
- Collision: Replaces you for damage to your car that occurs as a result of a collision with another vehicle or other object (such as a tree or guardrail) when you are guilty. This also includes damage from holes or from rolling up your car.
Comprehensive coverage and collision is an optional insurance that protects your car. Liability insurance is legally required because it covers costs related to injury, death, or damage caused by vehicles or other property caused by you or other drivers while driving your car.
3. More expensive vehicles are not always more expensive to insure
That’s why it’s important to find out how much your insurance costs for the various models you are considering when you start shopping for a new vehicle.
“An expensive SUV might have better claims rates for accidents or cars than a lower-priced car, so the premium end up costing less,” said Penny Gusner, consumer analyst for Insurance.com.
4. There are ways to pay less for car insurance
There may be several ways to reduce your insurance bill. In some cases, that means reducing coverage. For example, you might want to drop comprehensive coverage on old vehicles.
Increasing deductibles, what you will pay before insurance comes in, is another step to saving money – if you can afford to cover potentially higher out-of-pocket costs. According to the Insurance Information Institute:
- Increasing your deductible from $ 200 to $ 500 can reduce your collision and comprehensive coverage costs by up to 15 to 30 percent.
- Going to a $ 1,000 deductible can save 40 percent or more.
Insurance companies offer discounts on low mileage, lots of cars, safe drivers (no moving violations in three years) and students with good grades – just to name a few. You might also be able to get a better price for automatic bundling and homeowner coverage with the same company.
5. Personal car insurance does not cover the use of your vehicle for business
Most policies exclude driving a private vehicle for business purposes. Many companies will cancel your policy if they find out you did this.
“People need to realize that if they do any side shows – pizza delivery, messenger or ride drivers – they need to make sure they are covered, because if you are in an accident, you might be linked to everything,” Gusner said.
Talk to your insurance company about getting “support” for your policy to drive the business. Ride-share drivers – such as Lyft and Uber – have good coverage of ride-sharing companies when they have customers in the vehicle. When they go around waiting for the next driver they are at risk. Additional coverage provided by business use support makes sense, usually $ 10 to $ 20 per month, according to a survey by NerdWallet.
6. Let someone drive your car, and your insurance will pay if they have an accident
The general rule is: Car insurance follows the car, not the driver.
“If you lend your car to someone else, you basically lend your car and your insurance, in many cases,” said Eric Madia, vice president of product design at Esurance.
So, unless it’s an emergency, or you’ve been drinking, you need to think about the insurance implications of leaving someone else behind the wheel of your vehicle.
7. Let your car insurance disappear and it can increase prices when you need them again
It’s tempting to cancel your car insurance when you don’t plan on driving for a long time. Also easy to forget to pay bills. Whatever the reason, if you let your coverage expire, your insurance rates will be higher if you need more cover at the end of the road.
As Esurance noted in a blog post: “Car insurance companies consider the risks found to be higher than those who are diligent in maintaining their policies. And even one day lapse in coverage can lead to higher rates. ”
If you are not going to drive a car for a while for a reason, contact the insurance company and see what options you have.
How to get the best price for car insurance
Buying insurance is the same as any other purchase: If you want the best price, you need to shop for comparisons. Each insurance company has a different underwriting policy that results in different prices. You can compare policies side by side on sites like InsuranceQuotes, Esurance and Insurance.com.
“Insurance rates vary, sometimes hundreds of dollars a year, with different insurance companies,” Worters at the Insurance Information Institute. “You want to make sure you have a car insurance company that has a good rating, offers good rates, but also provides good service.”
For those who already have car insurance, Consumer Reports recommends checking interest rates every two or three years. “By seeing more than a few insurance companies, you will have a better chance at savings,” the editors write. You also have to shop the market whenever your personal circumstances change, such as getting married, divorced, or moving to a different house or apartment.