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The Nuts & Bolts of Auto Insurance - A Primer

In a nutshell, auto insurers like Geico, Progressive, and State Farm reap in the benefits, enjoying the status of participating in the most purchased type of insurance in America. A century ago, no more than 100 cars were insured with horse drawn carriages leading the pack. Although auto insurance is the largest property-casualty industry in the country, many drivers are unaware of the terms of their policies. This tutorial serves as an introduction to the world of auto insurance and does not reflect any particular policy.

What do I need auto insurance for?

Whether you?re driving a Mercedes Benz 2005 SLK or a 2001 Toyota Camry, your car is one of the most critical items you own. Auto insurance safeguards your investment and serves as a backup in case of accidents, theft, and damage. Being insured also demonstrates financial responsibility to the institution lending you money to buy your car. The costs of potential damages and injuries are countless, and auto insurance provides the funds to protect the safety of your passengers, drivers, property, pedestrians, and yourself. In addition, auto insurance is a strict requirement held in every state. Prior to registering your car, many states require that auto insurance paperwork! Bottom line: in order to drive, auto insurance is mandatory.

What are the different types of auto insurance coverage out there?

Insurers like Progressive and State Farm usually provide several different types of coverage, including general liability, collision, comprehensive, medical payments insurance, uninsured motorist, and extra coverage. General liability provides the funds in cause your wayward auto hits a pedestrian or tears down their fence. In essence, property and injuries to others are covered. Collision covers your bended fender, shattered window, and other damages to your own vehicle in an accident. Comprehensive covers many accidents altogether, like non-collision damage such as fire and theft in addition to break-ins and natural disasters that may impact your car.

In addition, medical payments insurance cover the costs associated with healing your car-related injuries (i.e. hospital stays, surgical treatment, etc.) This type of coverage usually falls in the $5000 to $1000 range and covers anyone in the vehicle (including you) regardless of who was responsible for the accidents. Medical payments insurance does not require its beneficiaries to be in a car. Any accident involving an automobile that affects you or your family members (whether you?re in another car, riding a motorcycle, or on foot) is also insured by medical payments insurance.

Uninsured motorist auto coverage protects the insured if they?re hurt in an accident where the drivers of the car-at-fault do not have adequate liability insurance. Finally, extra coverage protects its users from towing, labor, and temporary replacement vehicle expenses. Typically, this is a perk and is added on to a policy for a higher premium.

Does the fact I live in high traffic New York City than Ruraltown, USA affect my premiums?

Geographical location determines the level of accident or theft/vandalism risk to your vehicle in the eyes of the insurance carrier. This is why a Pontiac Grand Am owner in South Central, Los Angeles pays higher rates than the owner of the same model vehicle in Georgetown, Delaware. Insurance rates vary according to region, and different regions may hold better police and emergency response than others. In addition, insurance carriers take your areas quality of local medical services and traffic conditions into account. Every factor needed to calculate risk in a given area is investigated, down to how many lawsuits go to trial in your city.

Why are rates different for different cars, even if the cars cost the same?

Auto insurance companies have strategic formulas in place that group vehicles into categories. These categories are constructed to reflect the vehicle?s chances of being damaged, stolen, or vandalized. For example, Honda Civics and Toyota Camrys lead the ?Most Stolen Cars? list. Higher premiums are usually assessed with these vehicles. Geico and Progressive Auto Insurance also consider the size and type of vehicle, along with the cost of replacement parts. Therefore, durable vehicles like pick-up trucks should fare better in a collision than two-seater sports cars.

Insurance carriers recognize some cars are safer than others. Performance records in safety tests and durability ratings are also used to assess premiums for vehicles. Before purchasing your car, realize that sports car may incur higher premiums rates. By leaning towards vehicles with good safety records, your insurer will reward you with lower premiums.

Is having a liability insurance policy a requirement in all states?

Not all. Laws that stress financial responsibility in case of an accident are enforced upon drivers who should be able to provide funds for any damage or injury they may cause. Despite this, liability insurance is your best bet towards meeting your state?s financial responsibility requisites.

My insurer has cancelled my policy! What happened?

By law, auto insurance companies can cancel your policy if you fail to pay premiums, lose your driver?s license, providing false information during the application process (i.e. fail to report a recorded violation like a speeding ticket offense), and if you fail to inform your insurer of a new car purchase that may incur higher risk (i.e. buying a two-door coupe to replace your station wagon.)

In addition, you might run up a poor driving record throughout the life of your policy. Speeding tickets, drunk driving, and traffic violations will raise a red flag, deeming you unfit for a renewed auto insurance policy. One fender bender might be just cause for an auto insurance company to cancel your policy as well. Also, there are some things you cannot control that may cancel your insurance policy. Crime rates in your neighborhood might have increased dramatically, leading to a reassessment of your level of risk. Insurers are always assessing regions periodically which may mean assessing a formally safe area as a medium high-risk area. This dramatic shift may force insurers to cancel out altogether due to their rates not being high enough to cover losses.

OK. What?s the plan if my insurer refused to renew my policy?

To be continued ...

Posted on: 12/4/06 5:19:25 P

 

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