Car Insurance and Loans

There are so many aspects to car insurance, it should be a semester-long class requirement in high school. Nearly every driver in the US is required by law to purchase car insurance, yet many do not even know how it works. What does it cover? How much does it cost? Why does it cost so much? How do you file a claim? Car insurance questions are pretty much endless. It is important to learn the basics from an informed source.

Save yourself some time and money by studying up on car insurance and ask your agent questions throughout your driving milestones.

Types of Coverage

Liability: The main coverage on any auto insurance policy is the liability. It provides coverage for when the insured vehicle injures another person. The coverage is usually written on your declaration page as 25/50/10. The first number (25) means up to $25,000 could be paid out to a single person injured in an accident. The second number (50) means up to $50,000 could be paid out in an accident injuring multiple people. The third number (10) refers property damage which means up to $10,000 of coverage is provided for damage done to someone else's property.

Property Damage: Damage somebody's property with your car? You need property damage coverage to cover the damages. Property damage only covers damage to others. It can be anything from turfed lawn to cars to guard rails or mailboxes. It will not payout if you damage your own property.

PIP and Med Pay: Two types of medical coverage are available in some states, while others are only offered one.

PIP, personal injury protection, is required in no-fault states. It provides more comprehensive protection versus med pay. It will provide coverage for medical expenses, lost wages, even extras like lawn care if you can no longer perform the task on your own.

Med pay covers injuries of passengers of a covered vehicle. It is often limited to $25,000 of coverage or less. It does not matter who is at fault in order for it to pay out. It should not be used as a replacement for health insurance because it will only pay out for injuries which occurred in an auto accident.

Comprehensive (Other than Collision): It is one of the best car insurance options available.

It often pays for itself. Any physical damage which can occur to your vehicle other than a collision is covered here. One of the most common claims is windshield damage. Replacement of a windshield can get pricey and comprehensive coverage will get your chips filled for free. Full replacement of the windshield often requires you to pay your deductible but some companies allow you to carry a zero deductible just for glass.

Comprehensive covers a long list of other types of damage. Things like hail, flood, tornado, would all be covered if you purchase comprehensive. Hitting a deer, fire, theft, vandalism, and a tree falling and hitting the vehicle are all covered under comprehensive.

Collision: A collision is when a vehicle is moving and hits an object. It could be a mailbox, guard rail, another vehicle, or any other inanimate object.

Roadside Assistance: It is a perk, but often affordable. It can pay for itself rather quickly. Some policies allow for coverage only for a tow, while others cover lockout, jump, and running out of gas.

Rental Car: Having access to a rental car after a claim is important to many drivers who do not have a backup vehicle. Some insurance carriers automatically come with a small amount of coverage if your vehicle was in a covered accident. Otherwise, you will need to add the coverage to your policy.

Gap Insurance: Owe more than what your vehicle is worth? Gap insurance will cover the difference between the value of your vehicle and what you owe in the event of a total loss claim. The chances of having a total loss accident are not highly probable. Which in turn makes the coverage inexpensive.

Deductibles

A deductible is the amount of money you pay out of pocket after a claim in order to get your vehicle repaired. The higher your deductible, the lower your cost of car insurance. Deductibles keep insurance somewhat affordable. Deductibles deter people from filing claims for low-cost repairs. It is recommended to use car insurance for major expenses and not for minor dings.

Rating Factors

Age: You probably already know, age is a factor.

New driver's pay the most. Some insurance carriers gradually lower their rate as the driver ages. Age 25 is the magic age insurance carriers deem to be the beginning of the plateau on age-based ratings. As a driver ages into later stages in life, rates usually begin to increase. A 75-year-old driver could be charged rates as high as a newly licensed teenager.

Vehicle: Yes what car you drive makes all the difference. So many vehicles to choose from and they are each assigned a different rate by your car insurance carrier. Once you choose a class, the rate does not vary as much. Think minivans and SUVs for the cheapest rates and fancy sports cars and hybrids as the most expensive to insure.

Driving Record: The best drivers get the best rates. A clean driving record makes a huge difference. Even one ticket in three years can greatly increase your rate. Major violations like a DUI or careless driving often stays on your record for five years. Multiple speeding tickets can get you the same rate as someone with a DUI.

Insurance Record: An insurance record refers to a couple of different things. One is your prior car insurance coverage. When shopping for car insurance you will be eligible for a preferred policy if you currently have an active car insurance policy. You also get a better rate if you carry preferred limits of liability which is 100/300 or above.

The other part of an insurance record refers to how many claims have been filed. Were the accidents at-fault? At-fault accidents can increase your car insurance rate significantly. Accident surcharges often last three years. If you file two accidents in a three year period, your car insurance carrier will likely non-renew your policy. Which often leaves you with the only option to buy car insurance through a high-risk insurance company.

Location: Where you live usually makes a difference in your car insurance rate. Claims are monitored my insurance carriers and if you live in a high-risk area, it could be reflected in your car insurance payment. The definition of a high-risk area varies. A high-risk area could mean lots of deer accidents or lots of thefts or other types of claims.

Education: It is not commonly used as a rating factor, but some insurance carriers do use it. Apparently, studies have shown higher educated drivers file fewer claims.

Credit Score: Nearly every state allows insurance carriers to use credit scores as a rating factor in determining car insurance premium. The higher your credit score, the lower your car insurance rate. It can really impact how much you pay for car insurance. The credit check does not impact your credit score like opening a new line of credit. Insurance carriers have their own rating system that calculates what tier you qualify to be rated in.

If you believe your credit score has improved recently, request your car insurance carrier to double check it. If there is an improvement that impacts your rates, often they will lower your rate right away. It is always important to monitor your credit score. Research how to improve your credit score so you can get better rates on both car loans and car insurance.

Home Owner: Own a home? One of the best discounts available on a car insurance policy is a multi-policy discount. To get the discount you must have more than one insurance policy with the same insurance carrier. The best discount goes to homeowners because they will be eligible for both a multi-policy discount and a homeowner discount. Again it all comes down to studies done by insurance companies determining claims are filed less often by drivers who own a home.

Claims

Did damage occur to your vehicle? You might have a claim on your hands depending on what happened and what coverage you have on your policy. It never hurts to double check with your insurance agent to see if your policy covers the damage.

Key Points to Remember About Car Insurance Claims

• Car insurance does not cover mechanical or maintenance problems
• At-fault claims make your car insurance go up
• Expect to pay a deductible
• Communication with your claims adjuster is important

Proof of Insurance, State Laws, and Penalties

No Fault State Laws: No fault laws can be very confusing for many drivers. Just the title alone no fault leads people to the wrong conclusion of what it actually refers to. No fault means it does not matter who's fault the accident is, your policy covers you. Your policy covers you if it is the other person's fault. Your policy covers you if it is your fault. And no-fault usually is referring to medical coverage. No-fault states usually make a minimum PIP insurance coverage mandatory. It is said that no-fault states have reduced lawsuits and medical bills can be taken care of faster. Now if you live in Michigan, no-fault does not only refer to its unlimited medical coverage requirement but also collision coverage. Read up on Michigan's unique car insurance laws if you are a resident or thinking of moving.

Tort State Laws: Tort states hold at fault driver's responsible for damages. Property damage will pay out when a vehicle is damaged or any other type of property such as a mailbox or guard rail. The not at fault driver will need to file a claim on the at-fault driver's car insurance policy.

What Is Proof of Insurance? Proof of car insurance is a special document provided by your car insurance company stating the dates your car insurance policy is active. It will have the insured's name, the insured vehicle's year make and model, the VIN, and the policy effective dates listed. It will also have the insurance company's name and the insurance agency's name listed. Many states are now accepting electronic proofs of insurance provided on mobile devices. Fail to show proof of car insurance to a police officer or DMV and you could be looking at paying hefty fines and possibly lose your license.

Shopping for Car Insurance

Comparison Shopping: You cannot properly shop around for car insurance rates if at each agency you get quoted different coverage. Sometimes they cannot match coverage exactly, but it is important to make sure they are as close as possible. Find a copy of your declaration page, then drop it off or email it to several different insurance agencies. The agent can then try to closely as possible match your current coverage and still beat the price.

How Often to Shop: The frequency of which you shop for car insurance is unique to you. If you have a good relationship with your insurance agent and trust them, it might be better to stay in one place. Rates can vary sometimes even drastically from one insurance carrier to another. Shopping every two to three years could not hurt. A benefit of having your insurance through an independent insurance agency is that when you want to look for a lower rate, they can check with other insurance providers for you without the need to switch agencies.

Discounts

A long list of discounts is offered by every car insurance carrier. The best include the multi-car, the multi-policy, credit score, and accident and violation free discounts. The cheapest car insurance rates go the drivers receiving all of those discounts and more. Always try to keep all of your insurables with one insurance carrier. Keep your credit score as high as possible. And avoid accidents and traffic violations at all cost. What about free car insurance?