Car Insurance is a contract between the car owner and a financial institution in which the car owner pay the premium amount to a financial institution and for this premium amount the insurance companies (financial institution) are bounded to pay the contract amount if any damage happens within the contract period.
Table Of Content:
Introduction To Auto Insurance
Auto insurance is a type of policy which is purchased by vehicle owners from insurance companies to reduce the costs associated with an unfortunate auto accident or any other type of damage. In auto insurance, people pay annual premiums to an auto company to cover their accidental loss or damage to their vehicle due to an auto accident.
Understanding Auto Insurance Premiums
The price of auto insurance premiums depends on many factors like age, gender, driving experience, accident and other violation histories, and many other factors. While auto insurance is not compulsory in all the states but most of the states make it mandatory to take a minimum amount of auto insurance. There is also some difference in the minimum amount of auto insurance premium by state, but most of the people put some additional premium amount in their auto insurance to protect themselves further. If you are financing a car the car lender may suggest you carry certain types of car insurance to insure your car from accidental damages.
How Auto Insurance Works?
In exchange for customers premium, the insurance companies are bounded to pay the promised losses within the deadline of the policy. Auto insurance may cover these things according to the premium amount:
- Property Cover – In this, the insurance covers your car from accidental damage or theft of your car.
- Liability Cover – In this, the insurance covers all legal responsibility to others for bodily injury or property damage.
- Medical Cover – In this, the insurance covers all costs of treating injuries, rehabilitation, and sometimes, lost wages and also funeral expenses.
An individual can easily customize their premium prices according to his needs and budget. Generally, the policy terms are of six- or twelve-month time frames and easily renewable. An insurance company notifies its customer before the expiry of policy to renew the policy and pay another premium.
In most of the states car owners requires to carry such auto insurance which covers bodily injury liability costs associated with injuries or death of the car driver whether he is the owner of the car or someone else who is driving the car. In some state, it is required to take property damage liability, which reimburses the damages of others vehicle or their property which is caused by you or the driver who is driving your car.
Some states make it mandatory to carry personal injury protection (PIP), which reimburses medical expenses of car driver and passengers. PIP also covers lost wages and other relates expenses. It is a wise decision to carry an uninsured motorist coverage which protects you from an accident caused by a driver who does not carry valid auto insurance.
Who Does Auto Insurance Coverage Protect?
An auto insurance policy covers you and your family members whose name is on the policy, whether you are driving your own car or someone other’s car. Your policy also provides coverage to someone else who is not in your policy but driving your car with your consent.
According to coverage we classify Auto insurance into two categories:
- Personal auto insurance – Personal auto insurance only covers personal driving. This type of policy does not provide coverage if you use your car for commercial purposes—such as making deliveries or ride-sharing services like Uber.
- Commercial auto insurance – In commercial auto insurance, the car owner has to pay some additional premium account to insure his car in commercial damages.
How much an Auto Insurance Cost?
One of the most common questions asked by the new car buyers is, “How much car insurance cost?” There is no simple answer to this question because the need of every person is different but here we try our best to give a clear vision which helps to determine the perfect auto insurance for your new car.
Main Factors of Car Insurance Cost
- The car insurance cost varies from state to state, insurance company to company and country to country.
- It also varies from person to person based on their driving record, gender, age, insurance score, car type and also on insurance type which required by the car owner.
- Driving Record – Michael Barry, senior vice president of the Insurance Information Institute, says “The insurer is looking to access the likelihood that you’re going to be filing a claim, and somebody with a significant number of moving violations or more serious instances such as driving under the influence will impact the cost of insurance,” this means that your driving record determines your risk level, higher risk means higher premium and a lower risk means less premium.
- Gender – According to the known fact that female drive less than male. It simply means that the risk level of the male is higher than female so the premium cost for the female is lesser than male.
- Age – It is a well-known fact that older drivers are more experienced and safer than younger drivers. It means that the younger inexperienced drivers between the age of 18 to 25 get into more crashes so they have to extra premium for their coverage.
- Insurance Score – Insurance score is determined on your previous claims of your insurance. It helps the insurance company to determine how frequently you used to claim your insurance coverage, means lesser past claims reduce the premium cost.
- Car Type – The insurance company does not see the cost and weight of the car but they focus on the cost of repairing your car. Means the Lambo will need expensive coverage because its hand-built parts need to be exported from Italy to make it whole again. Similarly, sports cars need higher coverage premium because of the cost of repairing of sports cars are higher than normal cars.
- The manufacturing year and model also affect the cost of premium because it determines an average repairing cost of the car.
- Primarily there are five types of coverage—liability, collision, comprehensive, personal injury protection, and uninsured motorist—but liability is the only must-have.
Apart from these factors some other factors like the place where you live and the geography of your area also determine the cost of insurance premium. If you are living in a highly-populated area means the number of theft activity is probably higher in your area so the insurance company may charge an extra premium amount to you. If the geographical condition of your area is not good means there is a higher chance of natural disaster in your then you have to pay an extra premium for your car coverage.