10 Things You Should Know About Buying Auto Insurance
- How is Your Insurance Rate Determined?
Two factors determine what you pay for auto insurance. The first factor
is underwriting and the second factor is rating. Insurance companies
underwrite to assess the risk associated with an applicant, group
the applicant with other similar risks and decide if the company
will accept the application. Based on the results of the underwriting
process, the rating assigns a price based on what the insurer believes
it will cost to assume the financial responsibility for the applicant’s
Each company adopts its own rating system, although there are
general guidelines that all companies follow.
The single greatest influence on the rating process is claim frequency.
This does not mean how many times you specifically have made an insurance
claim, although that will have an additional effect. Claim frequency
measures how often an insured event occurs within a group relative
to the number of policies contained in that group. Persons sharing
characteristics with high claims groups will be charged more for insurance
- Specific Factors that Affect Your Rate
- Your driving record – drivers with previous
violations or accidents are considered to be higher risk
- Your geographic territory – urban areas have
more claims than rural areas
- Your gender and age – males have more accidents;
certain age groups have more claims
- Your marital status – married people show lower
rates of claims
- Prior insurance coverage – if you have been
cancelled for non-payment of premiums
- Vehicle use – higher annual mileage results
in higher exposure to risk
- Make and model of your vehicle – luxury and
sports cars average a higher number of claims
- Ask Your Agent About Discounts
Discounts are awarded because the insurance company sees you
as a “better risk.” Here are some discounts you should
look for: multiple vehicles, driver education courses, good student,
safety devices, anti-theft devices, low mileage, good driver/renewal,
auto/home package and dividends. Not all states offer all discounts,
so check with your agent to see if you qualify.
- Tort System vs. No-Fault System
Each state must implement either a tort system or a no-fault
system. The system your state has implemented will determine what kind
of insurance is available to you. The three basic coverages sold under
the tort system are bodily injury liability insurance, property damage
liability insurance and uninsured motorists coverage. In a no-fault
state, coverages will vary, but under a no-fault system your insurance
company pays you directly for your losses as a result of injuries sustained
in an accident, regardless of who is at fault. Check with your state
insurance department for questions concerning tort or no-fault state
- Check Into Optional Coverage
The most commonly recognized coverages, in addition to the
basic liability package, are collision and comprehensive coverages.
Collision coverage pays for physical damage to your car as a result
of your auto colliding with an object such as a tree or another car.
This is relatively expensive coverage and is not required by law. Comprehensive
coverage pays for damage to your auto from almost all other causes,
including fire, severe weather, vandalism, floods and theft. This coverage
will also cover broken glass and windshield damage. Comprehensive coverage
is less expensive than collision, but is also optional. Other optional
coverages include medical payments coverage, rental reimbursement coverage
and towing and labor coverage.
- Where to Go for More Information
Information is available to consumers from a number of unbiased
sources. These sources include public libraries, state insurance departments,
online resources, consumer groups and consumer publications. Every
state insurance department has personnel available to answer questions
regarding auto insurance coverage and many departments publish premium
comparisons to make shopping around easier.
- Shop Around Before You Buy
When shopping for auto insurance, premium quotations are a
useful tool for comparison of different companies’ products.
When asking for price quotations, it is crucial that you provide the
same information to each agent or company. The agent will usually request
the following information: description of your vehicle, its use, your
driver’s license number, the number of drivers in your household,
the coverages and limits you want.
- Where to Shop
Check the newspaper and yellow pages of the telephone directory
for companies and agents in your area. In addition, ask your neighbors,
relatives and friends for recommendations on insurance companies and
agents. In particular, ask them what kind of claim service they have
received from the companies they recommend. Remember to shop around
to get the best price and service.
- For Your Protection
Once you have selected the insurance coverages you need and
an insurance agent or company, there are steps you can take to make
certain you get your money’s worth. Before signing an application
for any insurance coverage, call you state insurance department and
verify that the company and the agent are licensed to do business in
your state. It is illegal for unlicensed insurers to sell insurance,
and if you buy from an unlicensed insurer, you have no guarantee that
the coverage you pay for will ever be honored.
- Read Your Policy Carefully
You should be aware that an auto insurance policy is a legal
contract. It is written so your rights and responsibilities, as well
as those of the insurance company, are clearly stated. When you purchase
auto insurance, you will receive a policy. You should read that policy
and make certain you understand its contents. If you have questions
about your insurance policy, contact your insurance agent for clarification.
If you still have questions, turn to your state insurance department.
© 1991 - 2015 National Association of Insurance Commissioners. All rights reserved.