You’ve probably been required to have an auto insurance policy since you’ve been driving. But how much do you really understand about car insurance?
Obviously, it protects you from liability of damage you cause to someone else’s car, injuries you cause to others, and damage and injury to yourself. But a policy can also protect you from theft, vandalism, and even natural disasters. So, let’s take a deep dive into how a car insurance policy works.
Types of auto insurance
Each car insurance policy is comprised of different coverages. Here are the different coverages involved in a policy:
Liability car insurance — covers the cost if you cause an accident, damage property with your vehicle, or injure someone with your vehicle. This is the minimum coverage required in most states.
Personal injury — this covers medical and other healthcare expenses if you or your passengers are injured in an accident. It can also offer payment for lost wages and other related expenses.
Collision — collision insurance covers damage to your vehicle whether you caused the accident or someone else. Liability, collision, and comprehensive coverage together is what is known as full coverage car insurance.
Comprehensive — covers damage to your car from things like weather, theft, vandalism, and more.
Uninsured/underinsured motorist — covers damage if your car is damaged by another driver who doesn’t have insurance or it doesn’t pay out enough for the damage caused.
Gap coverage — if your vehicle is totaled or stolen, your normal policy will only pay out the actual cash value. ACV takes into account depreciation which means your policy might not cover the amount still owed on a loan or lease. Gap insurance will pay that difference.
Roadside assistance — covers emergency assistance like tows, fuel delivery, and tire changes.
Car insurance premiums
The one thing everyone focuses on (whether that’s good or bad) when it comes to auto insurance.
A premium is calculated with one thing in mind: how likely the person applying for coverage is to get into an accident. So, how is that calculated? Through all these factors:
Credit — yes, your credit score matters with insurance too. Poor credit will raise premiums. This matters less to some companies, however, So, if you feel like this will affect you, be sure to shop around.
Driving record — obviously. If you have been in lots of accidents before, you’re viewed as more likely to get into another.
Deductibles and coverage chosen — higher deductibles and lower coverages = lower premium and vice versa. Just be sure to get the coverage you need or it could cost you way more later.
Demographics — age, gender, and where you live play into your premiums. Those under 25 pay more in premiums because of lack of driving experience. Some states forbid insurance companies to take gender into account but some still do. Where you live matters because more people and lots of city driving leads to higher probability of accidents, theft, and vandalism.
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