How Car Insurance Works
Insurance is a system whereby persons are required to pay a certain amount as premium in order to protect his or her health or property against the financial risk by transferring the risk to a larger group who agree to share the financial losses in exchange of the premium. There are two parties in an insurance agreement i.e. Insurer and Insured. The person whose risk is shared or transferred is called Insured. The company who offers the protection by selling the insurance policy is called Insurer.
Most people don’t understand how the car insurance works. Car insurance is tied to the vehicle and not the owner. Car insurance provides protection against financial loss if someone meets with an accident. As it is a contract between Insurer & Insured, the insurer compensates the Insured as per the terms specified in the insurance policy. All Auto insurance policies charge some deductibles in order to take this risk. Insurance companies don’t take care of all necessary expenses; rather the car owner is required to pay for the damages as per the insurance policy. For example in an accident the damage worth is $2500 and the car owner’s deductible is $500, then Insurer will pay only $2000 and $500 will be paid by Car owner. A car insurance policy is comprised of a host of various kinds of coverage. More detailed explanations are given below.
Bodily injury liability:
The Insurer pays for bodily injury to another person due to the negligent operation of the vehicle. The insurance company pays even if the damage is caused by any other member of the family or any other person who had used the vehicle under car owner’s permission.
Property damage liability:
If damage is caused by negligent operation of the vehicle, the insurance company pays for that. The insurance company pays even if the damage is caused by any other member of the family or any other person who had used the vehicle under car owner’s permission.
Uninsured motorist bodily injury coverage:
It provides coverage for physical injury that is caused by an uninsured driver who is at fault or the injury is caused by a hit and run driver who was at fault.
The insurance company pays the medical and also funeral expenses for the car owner and the members riding in the vehicles. Insurer also pays even if the car owner and his family members are struck by a vehicle while walking or riding in another vehicle. The insurance company covers this risk even if the car owner is responsible for this.
The Insurance Company pays for the repairing or replacement of vehicle caused by collision. The higher the deductible or premium, the lower the cost is for this coverage.
coverage the Insurer pays for the loss or damage to the insured vehicle due to fire, theft, flood, wind, vandalism, riots, storm, or earthquake to name a few.
Some states do require personal Injury Protection. Under this coverage the Insurer pays to the insured driver for treatment caused due to auto accident.
Switching car insurance:
There are many reasons which force the car owner to switch insurance companies. It may be price, services or area to name a few but typically the main reason is price. The first step is to get comparison quotes from few insurance companies. When getting the quotes the car owner should provide accurate information. Select the best Insurance Company based on price and coverage comparison. Also check the financial stability of company before making any decision. Make sure the new insurance is effective the same day your old policy terminates, thus avoiding any lapse in coverage. The important point is never cancel the old policy until the new policy is in force.
Steps to save money in car insurance:
If someone is armed with the following information then he or she can save money on car insurance.
Clean motor vehicle report:
Car insurance premium favors drivers with clean license. Driver should try to have a clean license. This implies the driver has not violated the motor vehicle norms for at least 39 months.
Insurance companies give preference to those drivers who have not met with any accident for at least 39 months.
Insurance companies favor those who have had insurance for at least 6 months.
Nowadays, insurance companies are looking at individual’s credit rating to determine the premium. A good credit rating will help the car owner to get best deal from an insurance company.
Defensive driver certification:
The driver is entitled to get 8-10% off on insurance rate if he or she completes the Defensive Driver Certification.
Select modest vehicle:
Insurance rate also depends on the vehicle model. The more expensive the car the more is the insurance rate. Car owner should purchase the modest vehicle in order to minimize the insurance cost.
Multi vehicle discount:
Insurance companies provide discount of 25% if more than one car is insured. Instead of making separate insurance Car owners should make insurance together.
Companies offer discounts if policy holders insure both house as well as car.
The insurance premium in suburbs can be 40% cheaper to city areas. Policy holders should try to live outside metropolitan areas.
The marriage gift:
Insurance companies consider single men under the age 30 are high risky. Married men under 30 are less risky. Insurance companies charge lower premium for married men.Source: news.carjunky.com