Buying car insurance is not an easy task, no matter if it’s your first or tenth time doing so. Whether you plan to shop for it online or meet with an insurance agent to talk things through, we get why this process can be daunting, to say the least.
Access to so many online resources may make it easier to search for policies and compare rates, but there are still lots of unfamiliar terms you need to get accustomed to before jumping into the pool of offers insurance companies provide.
The process is also made more complicated by the array of misconceptions that still prevail over how insurance actually works. Did you know that some people avoid buying a red car because they believe it costs more to insure?
In reality, the color of your car has nothing to do with how much insurance you are going to pay. Things such as accidents and speeding tickets may have a lot more to do with your policy increasing than the fact that you are driving a red, blue, or purple car.
With that being said, there are, indeed, plenty of factors insurance companies take into consideration when it comes to setting the premiums for a particular car, including age, car make and model, engine size, body type, and cost of repair. If you are feeling confused, know that it is normal, especially if it’s your first time buying car insurance.
As you learn more about the process, things will start to make sense, and you will find yourself speaking the jargon of insurance brokers in no time.
How are insurance prices determined?
This is one of the most frequently asked questions about any type of insurance. How does the insurance company determine how much to charge me?
While each insurance company has the liberty to set up its own formula for calculating insurance prices, most of them rely on the same generic factors, such as the make and model of the car, year of fabrication, engine size, your driving record, or how you plan to use the vehicle.
Besides the factors mentioned above, some insurance companies also take into consideration some more particular aspects such as:
- Age and gender
Based on general statistics, young drivers with fewer years of experience under their belt are more prone to be involved in an accident. At the same time, male drivers are more likely to have an accident than female drivers. Some companies may also take into consideration your marital status, as some statistics show married drivers are less likely to be involved in or file an accident claim.
The area you live in may have some influence over the premium prices. For example, living in a city or area with a high crime rate can be considered a bigger risk for insurance companies and increase prices, whereas living in a town with less traffic and car thefts can lower these risks. Take this into consideration when you are searching for the best car insurance in Florida.
- Credit history and score
Some insurance companies may take into consideration your credit score as well when calculating risks, as it is believed drivers with a good credit score are less likely to be involved in car accidents. While many consumer advocates consider this to be unjust, as it unfairly punishes low-income drivers, this is still a common practice for some insurance brokers.
What’s the difference between liability, comprehensive, and collision insurance?
The reason why many people make mistakes when buying car insurance is that most of them don’t understand what exactly it is that they purchase, even if it’s not their first time doing so. So, what are all these types of insurance, and which ones are mandatory?
- Liability insurance
49 out of 50 U.S. states legally require drivers to purchase auto liability insurance. The only state in which liability insurance is not mandatory is New Hampshire, but even here, drivers are required to prove they are financially able to cover the costs of an at-fault accident. Liability insurance covers damage caused to other vehicles or properties, injuries, and death.
- Comprehensive insurance
This type of insurance is optional and covers the costs associated with theft and damage caused by other incidents besides a collision. This can include vandalism, fires, or other natural disasters.
- Collision insurance
This covers the damage done to your car as a result of an accident for which you are at fault. It can be a collision with another car or object, as well as damage from potholes.
Will an expensive vehicle cost more to insure?
While the make and model of the car can influence the premium price, it has nothing to do with how expensive the car is. It has, however, a lot to do with how safe or prone to accidents the car is.
For example, a late-model SUV that has a ton of safety driving features may end up costing less to insure than an older lower-priced sedan because it has better accident claim rates. This is why it is advised you look online for approximate prices for the model you are planning to buy.
What if I use my car for business as well?
Personal auto insurance does not typically cover instances in which you use your car for business purposes. In fact, some insurance companies can go as far as to cancel your policy if they find out you have been using your car for other activities than personal ones.
If you are using your car for business purposes, such as delivery jobs or ride-sharing services, you need to buy special insurance that is designated for these activities. Ask your insurance agent if there are any types of endorsements you can add to your policy so that you can safely use the car for business purposes as well.