There is a widespread consensus that most people are confused or unaware to a certain extent about car insurance in North America. And with the various amounts of insurance providers and types of coverage, the confusion seems to be justified. Here we will break it down for you so that you can choose the right coverage for yourself and be able to pass on your knowledge to the people around you. We will begin by breaking down the basics and then move to discuss some generic policies.
Before you start reading about or talking with an agent, you must make sure that you are aware of some insurance terms commonly used. Some of the useful ones used in car insurance are described below:
The company or entity that provides the insurance is known as the Insurer. In the United States, State Farm, Geico, Allstate and Liberty Mutual Insurance are some of the main insurance providers.
2. Insured or Policyholder
The entity or person who buys the insurance from the insurer is known as the Insured or Policyholder. If you buy the insurance, you are the Insured.
When and if you are liable, you are basically responsible for the act that you are liable for. In simple term, liability refers to the state of being responsible for something. In most insurance cases, it refers to either paying an amount to another party.
Deductible refers to the amount that the insured party has to pay before the insurance company will cover the rest of the cost of any loss. For example, if your accident costs you $100, and your deductible is $10, you have to pay $10 before your insurance company pays the remaining $90.
5. Third Party
The third party is referred to the entity or people that are part of a legal situation due to the act of the insured. This may either be the state or another person that the insured may have caused damage or harm to. It may also be referred to the person who has initiated a lawsuit against the insured.
6. Insurance Premium or Premium
The premium is the amount that is paid monthly by the insured to the insurer against the policy. It means that this is the amount you pay in order to remain insured by the provider or insurer.
A quote refers to the estimated amount provided by the insurer after the possibly insured has provided his information. It is not an offer but an amount that is close to the actual premium amount if the person agrees to a policy with that insurer.
To begin with, it is important that you get a quote from as many insurers as possible. These will help you make the best decision by getting you the best deal on premiums. You should also familiarize yourself with your state law regarding car insurance.
Once you have selected the insurer, your personal details will determine the premium amount and other arrangements of your policy. These details include the model of your car, the type of your car and number of people being insured, your income and your credit score. Once you have agreed to the terms and agreements of the policy, you will receive details of your car insurance policy along with an insurance card that must be kept in the insured vehicle at all times. You may notice some numbers on the card written in the form 50/100/50 or 10/20/10. These numbers represent the limit of funds that will be used on your coverage.
- The 1st number stands for $50000. This is the amount available to cover the liability cost for the injury of one person involved in an incident.
- The 2nd number stands for $100000. This is the amount available to cover the liability cost for the injury of all persons involved in an incident.
- Finally the 3rd number stands for $50000. This is the amount that covers the property damage that was caused by the incident.
All the numbers are maximum values of the available funds. The insurer will not exceed this amount.
There are some types of basic coverage that is offered by insurers. We will discuss some of them below:
1. Liability Coverage
Liability coverage covers the cost of any liability that may fall on the insured in case of an incident or accident for which the insured is responsible. This includes property and bodily damage caused by the insured to the third party. There is a minimum requirement of the amount of liability coverage in the most stage which must be met.
2. Uninsured/ Underinsured Motorist Coverage
In most states, it is required by the law for a driver and vehicle to be insured before the person car drive. This is not usually the case in life. Even if they do have coverage, they may have the minimum coverage which is not enough to cover all costs. To cover these expenses, the Uninsured and Underinsured motorist coverage helps, making you safe from the irresponsibility of others.
3. Collision Coverage
Collision coverage covers the vehicles involved in a collision. This includes the expense of repairing a damaged vehicle and paying the value amount of the car if the car is totaled in the collision. It may not be useful to carry collision coverage if your car is old. If you have a new car though, collision coverage can cover your cost and help you regain the lost amount.
4. Rental Coverage
Rental coverage covers the cost of renting a vehicle when you are involved in a collision and your car is being repaired. It may also refer to the waiver that a rental company makes the person sign before a car rents to them. This includes covering the liability in case the rented car is liable for an accident.
5. Full Coverage
Full coverage refers to the combination of above-mentioned coverage such as liability coverage, collision coverage, and rental coverage. It may also refer to as comprehensive coverage in some countries. The term may be misleading because even though it says ‘full’, there are types of this coverage that vary in amounts due to the options they provide. So before you get excited about your full coverage, make sure to be thorough in understanding the terms of the agreement and the coverage it provides.
The basics of car insurance may not be as simple as they seem. The insurers constantly check your file and keep it updated in order to make sure that your credit score and your driving history is clean and remains that way. You are likely to get a higher quote if you have a new car, a bad driving record or a bad credit history. To keep your premium costs low, try and paying up the insurer upfront rather than dividing it over a period of time, keep a good credit score and raise the number of deductibles on your policy. Insurance is necessary whether you like it or not and it is better to be informed rather than learning by mistake once you jump into dealing with it.