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Frequently Asked Questions About Auto Insurance
Below you will find many answers to commonly asked questions about auto insurance:
· What is auto insurance and why do I need it?
· What are the most important things to consider when purchasing auto insurance?
· How are auto insurance rates determined?
· What does my auto insurance premium pay for?
· Why do insurance rates vary so much?
· What affects my individual auto insurance rates?
· How can I lower my rates?
· Why do I need to give so much personal information? Will everyone have access to my personal information?
· Why does my credit history affect my rates?
· Is the credit score used by auto insurance companies the same as that used by lenders?
· Will the credit history check affect my credit rating?
· How do I get my credit information fixed if it is wrong?
· Does the use of my credit information unfairly discriminate in any way?
· What if I forget to list something on my driving record?
· Can other people drive my car and still be covered?
· Why should I list all household members even when they don't drive my car?
· Does my policy cover me when I rent a car?
· What is the definition of an "accident?"
· What is a deductible?
· What should I do if I am involved in an accident?
What is auto insurance and why do I need it?
An auto insurance policy is a contract between you and an insurance company. You pay the premium, and in return, the insurer agrees to pay for any car-related losses detailed in the policy. Most states require that all drivers have an auto insurance policy, or the ability to provide evidence that you have the financial resources to pay for injuries or damages. Severe civil and criminal penalties may be incurred if you do not have insurance, including:
· Vehicle impoundment
· Revocation or suspension of driver's license
· Lawsuits
· Fines
· Imprisonment
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What are the most important things to consider when purchasing auto insurance?
Here is a list of things to consider when buying auto insurance:
· Choose the amount of liability coverage that meets your needs. For example, in Arizona the minimum requirements are $15,000 per person, $30,000 per accident, and $10,000 in property damage.
· Decide if you need optional coverage. Other types of coverage include collision, comprehensive, uninsured or underinsured motorist, and towing and rental reimbursement.
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How are auto insurance rates determined?
Insurance companies use statistical history to determine current rates. Rates are based on the amount needed to pay all claims and company business expenses.
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What does my auto insurance premium pay for?
On average, during the five-year period between 1995 and 2000, each dollar consumers paid for auto insurance has gone to cover:
*Note that for the last five years, auto insurance companies on average have not made profits on the policies they have written. In other words, for every dollar in premium collected, they have paid out $1.02 in expenses. In general, most auto insurance companies do not make an underwriting profit and instead rely on profits from investments made.
Source: Best's Aggregates & Averages, 2001 Edition
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Why do insurance rates vary so much?
You might think that your auto insurance rate would be pretty much the same no matter which company you choose. But your auto insurance rates can vary widely - even hundreds of dollars -- primarily because of:
Varying claims experience - Auto insurance is priced to cover the costs of accidents that may happen in the future. Of course, companies cannot see into the future, so to do this, they use information about their past claims experience. Since each company has had different claims experiences with the groups of people they insure, the rates charged customers by different companies vary.
Varying costs of doing business - Each company's cost of doing business (how much they pay to sell and service policies), along with their financial goals, is different, resulting in different prices being charged to consumers.
Auto insurance companies price policies to cover the amount they'll need to cover:
· Accidents that have occurred;
· Claims salaries, building leases, and other claims-related costs; and
· Non-claims expenses such as customer service salaries, advertising and the price of selling policies.
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What affects my individual auto insurance rates?
A number of factors can affect the cost of your automobile insurance. Age, make and model of car, driving record, purpose the car serves, where you keep and drive your car, and your credit rating all affect insurance rates.
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How can I lower my rates?
There are a number of things you can do to lower your rates. Here are some tips:
· It pays to use an Independent Agent who can shop for you. You can often find policies that vary hundreds of dollars for the same coverage on the same car.
· Choose an automobile that is inexpensive to insure.
· Ask your insurer if they offer any discount plans. Most insurance companies have both vehicle and operator discounts.
· Raising your deductible can lower your premiums. Make sure you can afford a higher deductible.
· Drive defensively.
· Improve your credit history.
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Why do I need to give so much personal information? Will everyone have access to my personal information?
Auto insurance companies typically collect only the information necessary to provide accurate insurance quotes. This may include your age, gender, marital status, and driving history. This information is not generally made available to others for any other purpose. All our carriers feature a "Privacy Policy" on their web sites to provide more detailed information on how your personal information is used and protected.
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Why does my credit history affect my rates?
Surprisingly, there is a verified correlation between poor credit history and increased claim risk. Insurance companies use credit history information to determine rates because, along with your other rating information such as gender, age, and location, it is a reliable indicator of overall insurance risk.
This can work to your advantage; customers with good credit history generally can get lower rates than those without. Typically, auto insurance companies will not use your credit history to deny coverage or to cancel your existing policy.
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Is the credit score used by auto insurance companies the same as that used by lenders?
No. Lenders use your credit report to estimate your ability to repay a loan. Auto Insurance carriers use a different method to estimate the likelihood or your filing a claim. Some of the issues that may be considered to determine your auto insurance rate include:
· number and history of late payments;
· derogatory public records (bankruptcies, judgements, liens);
· outstanding balances on credit accounts, how long you have had a credit history;
· the number of non-insurance inquiries;
· the number and age of auto loans.
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Will the credit history check affect my credit rating?
Credit Report inquiries are identified by a code indicating the company making the inquiry. Inquiries by insurance companies are also identified by this code. Most leading providers of credit scores, such as Fair, Isaac, exclude insurance inquiries from their credit score calculations.
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How do I get my credit information fixed if it is wrong?
You can contact the various credit reporting agencies to order a copy of your credit report to review the information. Generally, this report is free.
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Does the use of my credit information unfairly discriminate in any way?
No. Your credit has nothing to do with income, race, or religion. Rather, it is based on your bill-paying behavior and how you use available credit, and is largely within your control. Since most consumers pay their bills on time, most will enjoy the benefit of a lower auto insurance rate.
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What if I forget to list something on my driving record?
Your quotes are based on information you provide. All driving and claims records are verified before a policy is issued. Any omitted information would be noted at that time and the insurance premium would be adjusted to reflect your actual driving record.
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Can other people drive my car and still be covered?
Generally, anyone who has permission to drive your vehicle is covered. All people who regularly use your car should be listed on your policy. You should check with your agent for specific details.
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Why should I list all household members even when they don't drive my car?
All family residents of your household of driving age must be listed to protect both you and your insurance carrier. Exclusions are available in some states for family members who do not require coverage.
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Does my policy provide coverage when I rent a car?
Today, most companies will provide rental car coverage only if you are renting a car on vacation. Call your insurance company to find out what rental coverage you have under your policy.
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What is the definition of an "accident?"
For most carriers, an "Accident" includes the following:
· "At Fault," where you were negligent.
· "Not at Fault," where the other party was negligent.
· Reported and unreported collisions where you were involved as a driver.
· "Not at Fault" occurrences where your parked vehicle was damaged in a collision.
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What is a "Deductible?"
A deductible is the amount of each claim you agree to pay on collision or comprehensive coverage. Your insurer will pay the difference between the claim amount and the deductible. For example, if your claim is $2000 and your deductible is $500, your insurer will pay $1500 and you will pay $500.
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What should I do if I am involved in an accident?
Follow these simple steps:
· First, make sure everyone is all right, call for medical assistance if needed, and notify the police.
· DO NOT discuss the accident with anyone except for your insurer or the police.
· Give the other driver(s) your name, address, phone number, and the name of your insurance company. Get the same information from the other drivers(s). If the other driver is uninsured, report the loss under your uninsured motorist coverage with your company.
· Gather as many details the accident as you can.
· Finally, call your insurance company or agent as soon as possible.
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