Auto insurance is no longer just a good idea. What started out as an option has turned into a mandatory law in all the states. Despite the laws, auto insurance or lack of it, continues to be a problem everywhere. Learn about auto insurance, why it’s important and what constitutes how much your premium will be.
What is Auto Insurance?
Auto insurance is a type of insurance that protects you against physical loss or loss due to claims against you in the case of an accident. Auto insurance typically offers the following types of coverage.
• Personal Injury Protection (PIP) – This provides coverage to yourself and patients in your vehicle if they’re involved in a car accident.
• Bodily Injury Liability – This protects your against lawsuits filed against you by others who were injured in your car.
• Collision – This pays to fix or replace your car after it was involved in an accident caused by your colliding into something else.
• Collision– This pays for damages caused to your vehicle when it is damaged through no fault of your own such as hail, falling objects or animals.
• Optional coverage – This includes medical insurance premiums for others not in car, rental reimbursement or towing.
All the states require that drivers carry at least bodily-injury liability insurance. Liability coverage is usually sold with three options, stated the National Association of Insurance Commissioners (NAIC). You may see something like 100/300/50, which means that you have $100,000 in coverage against bodily injury liability; $300,000 against bodily injury liability and $50,000 against property damage per accident. The first coverage is per person and the second and third numbers are per accident.
What Determines the Premium?
Have you ever wondered why you pay $100 a month for insurance on one car while your friend pays $125 a month for two cars? This may be the result of different things. Various factors go into determining an individual’s auto insurance.
• Your driving record – This plays the largest role in determining your rate. Tickets and at-fault accidents can cause your premiums to be higher.
• How often you drive your car – Driving a lot of miles each day can cause higher premiums.
• Where you live – Drivers living in rural areas generally have lower premiums.
• Your age – Drivers under the age of 25 typically have higher premiums.
• Your gender – Females usually pay lower premiums than males.
• Car you drive – The type of car you drive will play a role in determining your auto premiums. Cars with good safety rates and low theft rates often have lower premiums.
• Your credit – Hard as this may seem to believe, your credit scores can actually help your hurt you when it comes to auto insurance.
• Amount of coverage – The amount of coverage you choose determines your insurance premiums. If you choose higher coverage and lower deductibles, you are going to be paying higher premiums.
• Discounts – Most insurance companies offer discounts such as multi-car or no claims.
Despite the Laws
Despite the laws, drivers continue to go without auto insurance, putting themselves and others financially at risk in the case of an accident. We spoke with Spirit Insurance Agency who reminded us that it is these uninsured drivers that help to spike the premiums for the insured drivers. In 2007, it was estimated by the NAIC that more than $10 billion was spent by insured drivers to compensate for the many uninsured drivers.
The good news is that the rate of uninsured drivers continues to drop, according to the Insurance Research Council(IRC). In their annual study, the IRC reported that the percentage of uninsured motorists nationwide has dropped down to 12.6 percent in 2013.
According to a 2014 report by CNBC, Michigan is the most expensive state for car insurance with some premiums at about $2,500 annually. Ohio, which is the cheapest state for auto insurance, offers premiums as low as $926. Regardless of which state you’re living in, it’s still beneficial to shop around until you find the lowest premium with the best coverage.
