HOW AUTO INSURANCE WORKS 
What is auto insurance?
Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy.
Auto insurance provides property, liability and medical coverage:
Property coverage pays for damage to or theft of your car.
Liability coverage pays for your legal responsibility to others for bodily injury or property damage.
Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.
An auto insurance policy is comprised of six different kinds of coverage. Most auto policies are for six months to a year. Your insurance company should notify you by mail when it’s time to renew the policy and to pay your premium. If you own your own car, you probably already know a little about car insurance. You may have heard the words deductible or premium. But, do you truly understand the different parts of an auto insurance policy and do you know how to choose the best coverage?
Forty-seven states require that you have at least some kind of car insurance, so it's a good idea to know what the law requires you to have and what additional or optional coverage will help to protect you in the event of an accident.
Before purchasing auto insurance, you must consider a variety of factors including what kind of car you have, your driving record and the amount of money you are willing to pay. Understanding the simple basics of auto insurance will make you confident that the car insurance policy you choose will take care of your needs in the event of an accident.
Types of Coverage
Everyone who drives needs car insurance. In fact, most states require it by law. When you buy car insurance, you are buying what is called a policy. Your policy is based on a variety of factors including what kind of car you drive as well as what kind of insurance you want. Auto insurance policies are actually a package of different types of insurance coverage.
The first step in understanding an auto insurance policy is to learn the various types of coverage insurance companies offer. Some of this coverage may be required by your state and some of the coverage may be optional.
Liability - This coverage pays for accidental bodily injury and property damages to others. Injury damages include medical expenses, pain and suffering and lost wages. Property damage includes damaged property and automobiles. This coverage also pays defense and court costs. State laws determine how much liability coverage you must purchase, but you can always get more coverage than your state requires.
Collision - This coverage pays for damages to your vehicle caused by collision with another vehicle or object.
Comprehensive - This coverage pays for loss or damage to the insured vehicle that doesn't occur in an auto accident. The types of damages comprehensive insurance covers include loss caused by fire, wind, hail, flood, vandalism or theft.
Medical Coverage - Pays medical expenses regardless of fault when the expenses are caused by an auto accident.
Uninsured Motorist - Pays your car's damages when an auto accident is caused by a driver who doesn't have liability insurance.
Underinsured Motorist - Pays your car's damages when an auto accident is caused by someone who has insufficient liability insurance.
Rental Reimbursement - This type of coverage will pay for a rental car if your car is damaged due to an auto accident. Often this coverage has a daily allowance for a rental car.
Many insurance policies combine a number of these types of coverage. The first step in choosing the insurance you want for your car is to know the laws in your state. This will tell you the minimum insurance you need for your car. It's good to keep in mind that, just because your state may not require extensive insurance, extra coverage may be worth the expense. After all, no one wants to be stuck with thousands of dollars worth of bills because of an auto accident.
The Price of Auto Insurance
There are several factors that affect the price of auto insurance. Of course, prices vary by company and you should compare prices thoroughly before you purchase a policy. The first thing that affects your policy's price is, of course, what kind of car you drive. For instance, a sports car costs more to insure than a family sedan. If you purchase a vehicle that has a high theft rate, your coverage will probably be more expensive. Essentially, though, your coverage will be based on the value of your car.
Another factor that affects auto insurance costs is where you live. If you live in an area where there is a high occurrence of accidents or vandalism, insurance will cost more money. For instance, since more cars are damaged in urban areas than in rural areas, you will probably pay more for insurance if you live in a city.
How often you drive will also affect your insurance costs. The more you drive, the higher the chances you will be an accident. Drivers who have long-distance commutes will pay more than people who live near their workplace. Meanwhile, if you only use your car on weekends, your insurance rates should be lower than someone who commutes to work daily.
The final factors that affect the price of auto insurance have to do with who you are. Your age, sex, marital status and driving record are all taken into account when you buy an insurance policy. Accident rates are higher for drivers under the age of 25, so if you are young, expect to pay a little more. Also, accident rates are higher for young males and single males. It doesn't seem fair, but if you are an unmarried 19-year-old male, your insurance rates will definitely be affected. If your driving record is impeccable, though, your rates will be lower. Obviously, drivers who are prone to traffic violations or accidents will have to pay more for insurance than safe drivers.
If these cost factors are beginning to scare you, don't worry. There are several ways to keep your insurance rates down.
Frequently Asked Questions:
Why does my insurance go up if I have an accident or get a ticket?
Insurance companies charge higher rates to drivers with tickets and accidents because they are statistically higher risks. Claims statistics and studies by law enforcement agencies show that the chances of having an accident increases depending on how many tickets and accidents a driver has already had.
If I lend my car to a friend, is he or she covered under my insurance?
Most policies will cover drivers who have permission to use your auto. But check your policy, or ask your agent, to see if the conditions of your policy will change for drivers who are not regular operators of the car.
I have an older car whose value is very low - do I need insurance?
You should always have bodily injury and property damage. In most states you're legally required to carry a minimum amount.
Will my insurance cover my leased car if it is stolen or totaled in an accident?
Your insurance company should handle your claims the same way whether you own, lease or finance your car. But, make sure to check on your company's rules about leased cars.
What does my auto insurance policy cover when I rent a car?
It depends on your policy. The best thing is to review your policy or ask your insurance agent. For example, your policy may cover cars rented for pleasure, like vacations or special events, but not for business.
Bringing the Costs Down
There are four main factors that can keep auto insurance rates down. See if you fall into any of the following categories. If you do, you may be able to save money on your car insurance regardless of the value of your automobile.
1. If you are looking to buy a car, consider buying a car that "looks good" to insurance companies. For instance, insurance companies know what kinds of cars are prone to problems. They also know what kinds of cars are most often stolen. If you haven't purchased your car yet, find out what cars make this "good list" among auto insurers.
2. Most insurance companies offer discounts for a variety of reasons - for example, good students, having more than one car insured and accident-free driving are all worth a discount. Ask insurance companies about specific discounts that may be available to you.
3. Consider carpooling or using public transportation to get to work. The less you use your car, the less your insurance will cost you.
4. Finally, drive carefully! Insurance companies are not happy to insure accident-prone drivers, so the safer you drive, the less you will have to pay for auto insurance.
Remember, don't be afraid to ask your insurance company about any discounts they offer - it could save you a little cash.
"Your protection and well being is our policy"
61 E Mill Reef Drive, Queen Creek, AZ 85143
(480) 987-5111 * (480) 980-0387 * Fax (480) 987-5553
Lancaster Insurance & Financial Service Center, Inc is licensed to conduct
business in Arizona. The information on this site is a solicitation to conduct
business only in the aforementioned state of authority.