Purchasing the Auto Policy
Factors Used to Determine Your Premium
In determining auto premiums, insurance companies rely on such factors as:
- each driver’s driving record;
- each driver’s annual mileage;
- automobile usage, (business or pleasure);
- the area in which you live (in some states this is permitted as a factor, in others it is not);
- the model, make, year, mileage, and value of the automobile(s);
- each driver’s age, sex, and marital status;
- anti-theft devices in each automobile;
- safety features in each automobile;
- the limits or amounts of coverage purchased;
- the number of automobiles covered under the policy;
- the deductibles you agree to pay; and
- each driver’s credit history (permitted only in some states.)
Individual Discounts on Premiums
When buying a policy individually, most insurance companies offer a number of inducements to prospective policyholders. These are offered as marketing devices. Before purchasing insurance, familiarize yourself with the different types of discounts available so that you can inquire as to the ones for which you may be eligible.
Some drivers are considered less risky than others.
Some of the more common “discounts” include:
- qualified “good drivers” Students with good grades;
- females, married drivers;
- non-Drinkers; or
- persons who have attended driver’s courses.
Foregoing collision coverage
Collision coverage is one of the most expensive components of automobile coverage. Excluding collision coverage entirely will greatly reduce your premiums. On the other hand, people do occasionally run their cars into concrete parking lot pillars and trees.
Note on on-line price comparison sites: There are dozens of on-line insurance sites that provide comparison quotes for different types policies. The problem is that these sites are never run by coverage experts. As a result you don’t know what you are getting, and not getting, except in the most general sense. In addition, none of these sites will help with claims issues or resolutions. They do not offer this service, because they do not know anything about claims.
Be very careful not to shop for insurance on the basis of price comparisons alone. That would be like choosing a restaurant solely on the basis of which one is cheapest.
Maintaining Your Insurance/Updating Coverage
Keep your auto insurance policy up-to-date. Have you purchased a new or additional car? Are there any new drivers in your home that should be included as insureds? If you did not meet the requirements of a “good driver” when you first purchased insurance, do you meet the requirements now? Have your assets increased so that you should purchase more liability insurance?
These are a few examples of things that can change after you first purchased your policy. When circumstances change, call your insurance company or agent and notify them. Follow up with a letter confirming your call. Keep a copy of the letter in your insurance file or notebook. Some updates may not modify your policy or change your premium at all. Others may require you to cancel your policy and purchase a new one (you will be refunded any pre-paid premiums). Or, you may simply have to add an endorsement or floater.
Renewals (and Non-Renewals)
Once you have been issued an insurance policy and paid your first premium, your automobile insurance coverage begins. Your coverage should continue in effect until the anniversary date of your policy or until the policy says it will end (as long as you keep on writing out the checks).
Before the policy expires, the insurance company should send you a “Notice of Renewal.” This notice will contain any changes in your premium payment or coverage. Read it carefully before you agree to renew your policy. Usually, you can renew your policy by simply continuing to pay the premiums. Be sure to read the notice of renewal in case the insurance company requires you to do something more. Before you decide to renew your policy, review it to see if it should be updated.
The insurance company may also decide NOT to renew your policy. It can usually do this for any reason. However, most states require that the insurance company give you adequate notice (usually 30-60 days) of its decision not to renew. This is intended to provide you with time to purchase insurance elsewhere.
As with all lines of insurance you can cancel your insurance policy at any time and for any reason. If you do so, you are entitled to a refund of any unused portions of pre-paid premiums.
However, if you simply stop paying the premiums and later decide to reinstate with the same insurance company, it may require you to pay any lapsed premiums.
NEVER cancel your insurance unless you have already purchased insurance elsewhere. If you cancel a policy and then an accident or disaster occurs, you will not be covered under your canceled insurance policy.
Next: Meeting with an Agent