What is Car Insurance?

Car Insurance is a part and parcel of owning a car, in the United States and many other countries you cannot own a car without having Car Insurance. It is therefore very important to understand Car Insurance so that you can get the best out of your policy.

This article aims to answer the main questions that concern how to get good Car Insurance.

Table of Contents

Car Insurance is mandatory in many parts of the world. Car owners purchase Car Insurance in order to cover for the risks that are attached to driving a car and getting into an accident. Car Insurance provides coverage from accidents caused by the driver or by third parties, having Car Insurance provides that financial cushion when the unexpected and unavoidable happens.

Every Car Insurance policy carries a monthly premium, this is the amount that the policy holder has to pay to keep the insurance policy in effect. Most Car Insurance policies are for 12 months, after which they can be renewed and extended. There are also short term Car Insurance policies that allow car owners to contract an insurance agreement for a shorter term.

Short term Car Insurance policies are best for people who do not driver frequently and therefore do not want to pay for their Car Insurance when they are not using the car.

How much does Car Insurance cost?

The cost of a Car Insurance can be associated with a number of different factors. Insurance agencies, look at the credit worthiness of the individual before looking at any other factor. The creditworthiness allows the Car Insurance agencies to determine how much financial risk they can associate with the individual.

Individuals having a high credit score can hope to get good rates, they can also negotiate favorable terms and conditions whereas individuals having low credit score will get higher rates and will have lower negotiating power. It is therefore very important to assess your own creditworthiness before going for Car Insurance. If your credit score is low then it is advisable to take some time to improve it. During this time however you will not be able to drive your car.

Apart from the credit score, there are other factors that Car Insurance providers look for. For instance

Age factor: Age is also a crucial factor when it comes to Car Insurance. Car Insurance agencies have a policy of considering individuals below 25 as risky drivers and every year that adds on to your age after 25 is a positive point for the individual because as the age increases, insurance agencies consider the driver to be a safe driver. So if you are below 25 then be prepared to get higher rates.
Experience factor: Car Insurance providers also consider the number of years the individual has been driving. The more experience one has, the better the rates will be. Young drivers will therefore be on the more expensive end of the spectrum. Remember, insurance agencies see cost in terms of risk.
Past Record: The past record of the driver is also considered by insurance agencies. Insurance providers can pull up the driving history, number of fines and tickets that have been booked against the driver. All of this detail helps the agency build up a profile to assess the risk associated with the applicant/individual.

Apart from the factors mentioned above, there are also other factors that the insurance agencies consider at the time of setting the terms and the rates. These factors can also help policy takers take steps to reduce the cost of insurance.

Type of Car

The type of car is a major consideration for Car Insurance. A car that has a good track record of road safety, which comes equipped with all the latest road safety features will have a lower premium because a safe car will reduce the risk for the insurance agency. This means that most of the middle priced cars will have a reasonable insurance premium attached.

Whereas the more expensive super cars and sports cars that come with high performance features will carry a high insurance premium because of the high risk associated with them.

The number of safety features are not the only factor but the price is also a factor. A high performance car can have safety features but because it is highly prices, it means that any repair job will also carry a high cost, as compared to a middle priced car.

What this simply means that even though Tesla and other self driving cars are relatively safer but they carry a high insurance premium because they cost more than your average middle priced car.

Defensive Driving

Another factor that policy takers must consider prior to going for insurance is their driving style. Yes the way you drive actually has a major impact on the cost of your insurance. Insurance agencies these days use all the latest technology they can to assess the risk associated with the policy taker. They use trackers to determine how the driver drives. The average speed and other driving habits can paint a picture for insurance agencies which they can then use to determine the driving style.

It is therefore advised that the policy takers should take a defensive driving course before going for a Car Insurance policy. Why? Because this will change their driving habits and make them a safer driver, so that insurance agencies attach a lower risk rate with your driving style. Believe it or not, having defensive driving style can allow you to get a lower premium.

Another way to reduce the premium payable is by agreeing to pay a higher deductible for the insurance policy. The deductible is simply the amount that you i-e the policy holder will pay before the insurance policy kicks into action. For instance if you get into an accident and your car requires $6000 worth of repairs. Then you will pay the first $1000 and the rest of the cost will be borne by the insurance agency.

A common way to reduce the insurance premium is by agreeing to pay a higher deductible. This shows to the insurance agencies that you are willing to take on the extra risk. Insurance agencies see this as a way to transfer the risk back to the policy holder, which is why they may agree to a lower premium.