Auto Insurance Basics

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Whether it is your first time looking for automobile insurance, or you are a seasoned shopper, most auto owners have many questions about how their coverage options. Hours can be spent combing the internet trying to find the information to even the simplest questions.

Not understanding insurance can turn costly for those who may not know what questions to ask. In that spirit, we have put together a list of common terms, their definitions, and a few questions our professional agents commonly answer.

Frequently Asked Questions

Your insurance policy covers any injuries you may incur in an auto accident. It may also cover damage to your car. Your auto insurance will also cover injuries to anyone else involved in the accident, as well as their vehicle.

No, there are several different types of insurance policies you can purchase. You can buy property damage liability, bodily liability, comprehensive, uninsured and underinsured as well as collision.

Yes, auto insurance is mandatory on new cars before a dealership will allow you to drive it off the lot if you are making payments. This is to ensure that if you do have an accident the car will not be a complete loss. Not only will a car dealer require you to have insurance, but also according to provincial law, you must have auto insurance to legally drive. If you are pulled over without insurance, you may receive a ticket and a fine.

If you are unlucky enough to get in an accident with someone and you do not have insurance, the other party can sue you requiring you to pay out of pocket for all expenses. If this happens, you could end up losing something important such as your life savings. There is also the chance you may go to jail since it is illegal to not have insurance on your car.

It depends on your driving history. Most of the time car insurance is relatively affordable. However, in some instances, accidents, tickets for speeding, or driving while intoxicated this will definitely raise the premium of what you would have to pay.

Although not usually recommended, the cheapest option that you can purchase is an auto liability only insurance policy. Auto liability policies cover bodily injury and property damage. This policy will leave you with the cost of repairing or replacing your own car in the event of an accident.

Members of your household can be added to your policy. Keep in mind this means only people that live at the same address. You would not be able to add a sibling, for example, who lives two blocks over.

Many insurance companies provide a few options of how you can pay for your policy. You can pay for a full six months or a year at once. You also have the option of making monthly payments on your policy. You just choose which payment option is best for you.

The first time you do not make a payment on your policy, your insurance company will mail you a warning letter. If you miss another payment, the company may charge you a late fee, or sometimes a company will cancel your policy.

The deductible is the amount you have to cover yourself after an accident before your insurance company will pay the rest. You can choose how much this deductible is while you are setting up your policy. Common amounts are $500 and $1,000. Be sure to make a deductible choice that will help you most in the event of an accident.

This is a question that is truly only able to be answered on a case-by-case basis. That said, unless you have a circumstance allow your insurance to be deductible, such as owning a business, normally car insurance is not tax deductible.

Yes. You may call any time to make a change to your policy. However, additional premium may be required if adding or increasing coverage. While reducing coverage may result in a refund subject to any minimum premium requirements.

It is possible. If you have a DUI, which is driving while under the influence, or a serious accident where you were found to be at fault on your driving record, an insurance company may refuse to provide you with a policy.

Yes.  Your gender will have an effect on the amount that you will have to pay. Statistical data comes to the conclusion male drivers are more likely to be in a motor vehicle accident than their female counterparts. As a result, males do have a higher premium than a female.

Your credit score will have an effect on your premium. If your credit score is high, your premiums will likely be lower than someone with a lower score will. When you renew your policy, your new credit score may be taken into consideration.

This is just a myth. No matter if your car is red, white, or purple, your premiums will be the same.

There are several ways you can obtain premium discounts. Safety and security features on your car can help reduce your premium. If you are a student, be a good student. Having a good credit score will also lower your premium amount. Having a clean driving record is a great way to get a lower premium. And be certain to ask your agent for any other discounts available to you.

It really depends on the condition of your car. Most older cars are not worth very much, so they don’t get provided a high amount of coverage when they are covered. In the event of an accident, most older cars are a total loss, meaning it would cost more to fix than the car is worth if it can be fixed.

No, filing a claim has become quick and easy. Some companies even have an app you can use. However, with most companies, you will just call and speak with an agent. The process should only take about twenty minutes.

If you have been proven to be driving recklessly, the insurance company may deny your claim. It may also deny your claim if they find that you are lying about accident damages, were fraudulent on your application, committing a crime, or intentionally trying to injure or harm.

They will pay to replace your car if you have comprehensive coverage on your policy. This is the insurance option that covers theft and damages caused by something other than an accident.

Rental insurance is available on most automobile policies. In most cases, your car insurance will cover the cost of a rental. However, it is important to note many costs will not be covered, such as the rental company’s lost revenue, depreciation of the vehicle, and loss of use.

Definitions

Actual Cash Value
This is the fair market value of property calculated by taking the replacement cost minus depreciation.
Agreed Value
An agreement between you and the insurance company agreeing to a set value for your vehicle. This will be the amount paid in the event of a claim instead of actual cash value. Agreed value is most common for antique, collectible, or custom vehicles.
At-Fault
This is the party deemed responsible for an accident.
Catastrophe
A disaster affecting a specific geographic region capable of causing serious injuries, death, and extensive property damage. Typical catastrophes include hurricanes, floods, tornadoes, and large hailstorms.
Claim
A request or a demand for payment under an insurance policy.
Combined Single Limit
A singled, shared limit of insurance providing coverage for bodily injury and property damage.
Declarations Page
Usually one of the first pages found in an insurance policy, the declarations page lists a minimum set of required information including, but not limited to, the named insured, insured’s address, policy inception and expiration dates, limits of coverage, and deductibles.
Deductible
A dollar amount the policyholder must pay on each loss where a deductible applies. Once the deductible has been met, the insurance company will pay up to the policy limits.
Depreciation
The amount of decrease in value due to time, wear, and tear. Depreciation is not an insurable loss.
Economic Loss
The total financial loss as a result of death or injury resulting from an accident. This includes loss of earnings, funeral expenses, doctors and medical bills, cost of property restoration, and legal expense. This does not include the losses from pain and suffering.
Effective Date
The date coverage begins.
Expiration Date
The date coverage ends.
Endorsement
An amendment to an existing policy changing the policy terms in some way.
Exclusion
A section of an insurance policy that lists property, perils, individuals, or circumstances as to when coverage would not apply.
Gap Insurance
Optional coverage, which will pay any difference between the market value of your vehicle and your outstanding loan or lease balance after a total loss.
Hazard
Something which increases the change of an accident or loss event to occur.
Indemnification
The act of providing compensation to make an individual or entity whole after a loss.
Insurable Interest
A circumstance whereby an individual or entity would suffer an economic loss if the insured vehicle were damaged.
Insurance
A system where groups of individuals with similar risk exposures transfer their risk to an insurance company in exchange for a premium.
Insured
An individual or entity covered under an insurance policy.
Insurer
A company providing insurance with the promise to pay claims in exchange for premiums.
Legal Liability
Liability as dictated by governments and law, versus liability arising out of a contract.
Liability
An enforceable obligation or responsibility under the law or injuries or damages suffered by another individual.
Loss of Use
Compensation paid to an individual or an entity for their inability to use property because of accident-related damage.
Named Insured
A person or company designated by name as the person insured under an insurance policy. Others may be protected by broadened definitions of named insureds within a policy.
No-Fault Insurance
Medical expenses, lost wages, and other related expenses paid by your own insurance policy regardless of who was determined to be at fault for your injuries.
Non-Owned Auto
Any vehicle not owned or leased by the named insured, but used by the named insured.
Peril
Hazards that can cause a loss. For example, wind is a covered peril where unsecured property is a hazard.
Personal Injury Protection
Medical expenses, lost wages, and other related expenses paid by your own insurance policy regardless of who was determined to be at fault for your injuries. See no-fault insurance.
Premium
The price paid to maintain an insurance policy.
Rental Reimbursement
Helps pay the cost to rent a vehicle while the insured vehicle is under repair due to damage from a covered cause of loss.
Replacement Cost
Pays the full cost to repair or buy a new item to replace the damaged item.
Subrogation
The process of one insurance company seeking reimbursement for a claim they paid when the other party was at fault.

Now that you know the basics, choose a product!