How Car Insurance Works

The car insurance quotes you get will include the basic requirements for your state and offer various options to enhance your policy. For example, if you’re in a state where liability insurance isn’t required, you may want to purchase it anyway. You’ll have options for lower or higher deductibles (higher ones will decrease your policy rates), extra coverage for certain items like glass damage, personal property (certain items in your car that might not be covered by homeowner’s insurance), and so on. Check these carefully to make sure you get the options that make the most sense for your lifestyle and that you can afford.

Good news is that insurance companies are beginning to incentivize their policy owners by granting them discounts when they stay out of trouble. Some will decrease your rates if you don’t get into accidents, don’t get tickets, have GPS or anti-theft devices installed – even take driver’s education classes. Taking those classes is important for new drivers who typically have the highest car insurance rates.

The list below is what many car insurers look for to assess your risk rating. Take a look to see how risky – or safe – you look to the insurance company.

Driver’s record (accidents and tickets indicate recklessness)

Steady job (your ability to pay)

Home ownership or long-term rental (sense of responsibility)

Age (younger drivers are considered riskier)

Sex (females tend to be considered safer drivers…sorry guys….)

Married or Single (married drivers get lower rates)

Type or Class of Vehicle (motorcycles, sports cars, etc… are considered higher risk)

IMPORTANT TERMS TO KNOW

Liability Insurance

Coverage for bodily injury or damage to property that results from an accident.

Collision

Policies that pay for damage to your car as a result of an accident with another vehicle.

Comprehensive

Policies that cover other types of damage to your car – fire, theft, water, etc…

Full Coverage Policy

Includes Collision, Comprehensive and Liability coverage.

Deductable

The amount you will be responsible to pay of the total damages. For example, your damages total $1000 and you have a $500 deductible. You pay $500 and the car insurance company pays $500.

GAP insurance

Loan or lease “pay-off” coverage. This is usually offered by car dealers or car rental agencies. It will pay down lease contracts/loans if damage to a car results in it being worth less than the remaining amount of the lease contract or loan.

No Fault

In some states, both parties’ insurance companies pay out on claims from an accident. In other words, no one is “at fault.” What this also means is that neither party can sue the other in court (note that in some states you can still sue if the damages meet a certain level). Still, the person determined to have caused the accident based on the police report is the one who will have their car insurance rates and risk rating increased.