Car Insurance: The Facts

Car insurance is needed by virtually all drivers in the United States. An estimated  95% of all households in the country own a car, with many of them possessing even more. New car sales in 2016 alone already totaled to 7,195,000. However, there is a significant gap between the number of registered vehicles (263.61 million) and the number of licensed drivers (218 million).

In this time and age, road safety is at the forefront of state laws regarding road rules and driving penalties. Auto insurance isn’t just an expenditure; it’s a lifesaver. It secures and protects not just the insured individual, but also the people who might get involved in a traffic accident.

The basics

Car insurance, at its core, protects drivers and passengers from financial disasters in the event they get into a motor vehicle accident. It is mandatory in (almost) all states in the country.

The world of auto insurance is complex and quite the confusing one. However, when you equip yourself with the knowledge of how it works and why it is a legal requirement, you’ll have an easier time finding the coverage that best suits you.

Financial capability

Since car insurance requirements are governed by the state, it tends to differ from place to place, although they share one thing in common: they mandate motorists to prove financial capability. This means all drivers can prove their ability to shoulder the costs associated with damages they cause in an accident.

In some states, motorists can prove their financial capability by posting a certificate or bond as a form of damage payment. But the easiest, simplest, and most convenient way for drivers to satisfy their legal responsibilities is through purchasing car insurance.

Benefits of car insurance

In the past, victims of traffic accidents usually didn’t receive any compensation. With the rise in the number of cars on the road though, the federal, state, and local governments had to something.

Enforcing car insurance as a mandatory requirement for drivers help the state and its residents considerably. Drivers and passengers receive protection from the exorbitant expenses associated with car accidents. This particular form of insurance product ensures that:

  • The driver who caused the accident can pay for the medical costs for treating the injuries sustained by anyone involved
  • The at-fault driver can cover property damage expenses without losing a lot of money from a lawsuit
  • The accident victims will receive adequate medical care, financial assistance for medical expenses and/or for repairing property damages with as little delay as possible
  • All in all, car insurance can provide you with assurance and peace of mind knowing that you’ll have financial protection after an accident.

The standard car insurance coverage

In many states, the most commonly mandated type of car insurance is liability coverage, although states have varying laws on the minimum legal amount required. This provides coverage for the damages you caused to the other party.

Liability coverage is just one form of auto insurance though. There are several other coverage types that motorists will find really useful and beneficial. Here are just some of them:

  1. Comprehensive – Covers property damage to an insured vehicle for reasons that aren’t accident-related.
  2. Collision – Covers damages an insured vehicle sustains after a collision.
  3. Uninsured/underinsured motorist bodily injury coverage – Provides financial assistance for medical bills in the event that the insured person sustains injuries after an accident caused by a motorist who doesn’t have or has insufficient insurance.
  4. Medical expense payments coverage  – Helps pay for the medical expenses incurred by the insured (and other victims), regardless of the at-fault party.

Third-party insurance must-know facts

A third party claim occurs when an insured individual files a claim against another person’s insurance policy. There are several reasons for this, including the following:

  • A passenger in a car that was involved in a road accident sustained injuries. In this case, the victim can file a third-party claim against the insurance company of the at-fault driver. The driver’s insurer may have to pay for the victim’s medical bills and/or property damage.
  • Drivers deemed not at fault for causing an accident in a no-fault insurance state can also file a third-party claim against the insurance company of the other driver involved.
  • A motorist who sustained injuries while driving a company vehicle involved in an accident may also file a third-party insurance claim.
  • Drivers injured in an accident while driving their own automobiles for work purposes may also make third party insurance claims.
  • Third-party claims are claims made by people in instances not involving their own insurance policies.

What gap insurance is all about

Gap insurance, another form of auto insurance, protects the insured from potential losses that may arise in the event that the total amount of compensation received after complete loss doesn’t tally with the entire amount owed on the lease agreement or car loan. In other words, what the insured still owes for the vehicle is less than its book value.

For instance, the value of a car involved in a road accident, and completely written off, amounts to $15,000. The owner, however, still has to repay his/her lender an amount totaling to $20,000. If the owner purchased gap insurance, he/she won’t have to shell out the difference of $5,000, as the insurer will cover this.

What to do when you get in a car accident

In the event that the authorities deem a driver as the at-fault driver after a road traffic incident, he/she should file a claim with his/her auto insurance company as soon as possible. This way, the insurer can process the payments needed to cover the damages incurred.

Once the insurance company processes the claim and pays out the funds, it may already regard the policyholder as higher-risk. This may lead to an increase in insurance premiums.

Also note that whether an insured individual files a claim or not, if the police cite him/her in an accident, his/her insurer may still raise the insurance rates due to reasons associated with potential driving habits.

Because the slightest increase in insurance rates can already make a huge difference, motorists should do everything they can to keep their driving records clean and spotless. Avoiding accidents through proper driving behavior is key to obtaining and maintaining low auto insurance rates.

Here’s why you shouldn’t drive without auto insurance

Penalties for driving without proof of car insurance vary from state to state. However, these laws share one thing in common: they can cost uninsured/underinsured motorists a lot of money and time.

As previously said, regulations surrounding driving without insurance vary from state to state, but there are some similarities:

  • Suspension of driver’s license.
  • Suspension of vehicle registration.
  • Receiving a no insurance violation ticket aside from the ticket/s for the main reason the authorities pulled the driver over.
  • Satisfy all requirements of the SR-22.
  • Hefty fines, including those for the reinstatement of license and registration, as well as those imposed for the corresponding traffic tickets.
  • Higher insurance rates, followed by an increase in premiums.
  • These are just some of the many different consequences of driving without (or insufficient) insurance. It doesn’t even cover medical and funeral expenses, as well as property damage.

What drives car insurance payments

On average, the annual auto insurance premium in the United States amounts to around $800. However, this varies widely, as there are many different factors that drive individual insurance rates. These factors all help insurance companies assess how likely a potential policyholder may get into a road-related accident.

  • A clean, spotless record warrants low premiums. Drivers who haven’t had any accidents or major traffic violations typically enjoy better rates. Also, those with longer driving experience may receive lower rates than new drivers.
  • The more miles a person drives, the greater the possibility of getting into an accident. Motorists who drive to work or typically go on long drives usually pay more.
  • Statistically, mature drivers have fewer citations and accidents compared with their younger, less-experienced peers. This is why insurers charge teenage drivers and motorists under the age of 25 higher insurance rates.
  • Females, as many years of studies and statistics show, tend to take fewer risks than males, so they have fewer accidents. As a result of them having lower risks, insurance companies charge them lower.
  • A lot of insurance companies consider credit-based insurance scoring as one of the most effective tools for predicting a person’s likelihood of filing a claim. They take into consideration one’s payment history, length of credit, collections, outstanding debt, and bankruptcy.

Some cars cost more to insure than others. Variables include the likelihood of theft, the cost of the car, the cost of repairs, and the overall safety record of the car. Engine sizes, even among the same makes and models, can also impact insurance premiums. Cars with high-quality safety equipment might qualify for premium discounts.

There are plenty of other variables that determine an individual’s vehicle insurance rate, such as the specific type of car one will insure as well as the kind and amount of coverage, but the five above are typically the biggest influencers.

Right coverage – right price

The cost of purchasing and maintaining car insurance doesn’t have to cost you such a significant amount of money. There are many different ways to save while remaining adequately covered. Start with the following:

  1. Teenagers: Look for discounts designed specifically for teen drivers. Undergoing a driver safety education course, maintaining good academic grades, and having low yearly mileage typically warrant discounts.
  2. New drivers: Include them in an existing vehicle insurance policy.
  3. Male drivers: Avoiding accidents and traffic citations will help keep insurance rates down.
  4. Seniors: Discounts are also available for senior drivers, including the Mature Driver Discount, the Low-Mileage Discount, the Mature Driver Training Course Discount, and the various Senior Organization Membership Discounts.
  5. Military drivers: Insurance companies offer special deals for the military, so ask about these as well as other money-saving offers.

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Insurance without a car

You don’t have to own an automobile just so you can purchase car insurance. In the United States, non-owner car insurance is also popular. With this, you’ll receive liability coverage when you rent a vehicle or drive someone else’s vehicle. When you get into an accident and found at-fault, the insurance will pay for the injuries and/or property damage you caused the other drivers as well as their passengers.

All in all, car insurance is an integral component of the lives of drivers and passengers since it provides security against major financial disasters.