Auto insurance can be a particularly confusing field, especially for those in high-risk groups who need to give additional consideration to any potential policy purchase. However, there are a number of significant facts that motorists should be aware of whenever the subject of auto insurance arises. By understanding some of the best inside information available, consumers can look forward to saving money, obtaining effective insurance coverage and enjoying the peace of mind that comes with purchasing the best possible policy.
Pay More Now – Save More Later
The cheapest auto insurance policies are rarely the best. In most instances, a budget policy will only provide the absolute minimum level of mandatory coverage. When the time comes to make a claim, motorists often find that they are woefully underinsured. This will often result in substantial hidden costs which could have been avoided if a more suitable policy had been purchased in the first instance.
Although a more detailed policy will cost a little more initially, the benefits will soon become apparent if a claim is eventually made. Motorists should consider the full range of insurance add-ons if they are to be fully protected, particularly if they are driving a new or nearly-new vehicle. GAP insurance, protection against uninsured or underinsured drivers and rental reimbursement are just a few of the optional extras a consumer should consider when purchasing a new auto insurance policy.
Understanding Influencing Factors
There are a significant number of influencing factors that an insurance company will take into consideration before they finally come up with a policy and premium offer. Insurers use a process known as underwriting and this will determine which insurance group the driver and vehicle will be placed in. It is important to note that most insurance companies use different underwriting methods and this is why equivalent polices can vary so greatly in price from one carrier to another.
The element of risk is one of the most significant factors that insurance companies will rely on when underwriting a claim. As well as producing statistical data on the risk levels of the motorist, the software used by insurance companies will also account for the vehicle being insured. Vehicles that have more chance of being involved in a road traffic accident, such as performance vehicles or sports cars, will have a higher insurance rating than older vehicles with small engine capacities.
Insurers will look into any claims made within the previous 3 year period and will also check the credit histories of all insurance applicants. A record of poor payments may result in higher premiums and the option of monthly payments being withdrawn.
Why Prices Vary
Technically, an auto insurance policy should be exactly the same price if an exact equivalent is quoted from two different insurers. Prices for coverage are set and approved by the state and these cannot be altered by the insurance company or a broker. However, the differences in the underwriting methods employed by separate companies will inevitably lead to fluctuations. If a driver is considered to be a higher risk with one insurance company, the software will automatically add additional levels of coverage to alleviate the potential outlay of the carrier in the event of an accident.
These methods are just one reason why price comparison has become such an important factor in obtaining auto insurance. Most price comparison sites offer the option of adding and withdrawing individual elements of a policy and this can help in attaining the best possible coverage at the best possible price.
Policy Lapses Cost More
Allowing a policy to lapse will eventually cost you more in the long run. Drivers who fail to renew a policy are more likely to drive without any insurance at all so carriers view them as being less responsible. In turn, this makes them a higher risk so premiums will rise accordingly.
When a policy is due for renewal, most insurance carriers will send out a notice of renewal which serve as a reminder that the current policy is about to expire. If the policyholder has had an accident-free period of driving, they can expect to see a slight reduction in cost compared to the previous year.
High Deductibles = Lower Premiums
The deductible costs on a policy can be either increased or decreased. In effect, the higher the deductible figure is, the less the insurance company will have to pay out on a claim in the event of an accident. This alleviates part of the risk that the insurer has to carry and because of this, premiums will lower accordingly.
It is important to remember that an increase in deductibles will come at a price. If an accident actually happens, the policyholder must be able to afford the deductible costs otherwise the policy could be declared void.
Most insurance companies will offer a discount if a policy application meets certain criteria. Online applications will normally result in a deduction of 10% of the cost of a policy while some carriers are currently offering two free months of coverage for every annual policy purchased.
There are also a number of other discounts that can be applied and these are usually given for maintaining an accident-free driving record, prompt payments, fitting anti theft devices and driving a vehicle with additional safety features such as ABS braking and airbags.
Although levels of coverage can always be adjusted to fit into a budget, it is inadvisable to change the basic minimum level of insurance for your state as this will leave you underinsured. However, other features on a policy that might not be as important, such as breakdown cover or collision damage protection, can be easily removed to help bring down the overall premium.
The type of car that the policyholder uses will have a direct effect on insurance premiums. High performance engines on sports cars will inevitably attract higher insurance costs than a smaller, older vehicle with a low engine size. This will be particularly important to high-risk motorists such as young drivers because premiums can be lowered by driving a more conservative vehicle.