Car Insurance 101: Why State Mandated Minimum Coverage May Not Be Enough

Car insurance is an important purchase, so important in fact that state governments around the country have passed laws requiring every driver to buy it. Forcing every driver on the road to carry car insurance expands the risk pool and this can lower the cost of car insurance for every driver. Mandatory car insurance also minimizes the chances that you will be involved in an accident with a driver who has failed to purchase car insurance. Many states tie car insurance to vehicle registrations and purchases, making it harder for drivers to avoid buying the coverage they are required to have by law.

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But while minimum mandated coverage is certainly important, it might not be enough to truly protect you in the event of a crash. It is important for all drivers to look at the minimum amount of liability insurance and property damage coverage required by their states and determine if that coverage is really enough to protect themselves, their families and their vehicles.

For instance, in some states the minimum amount of property damage coverage drivers are required to carry is as low as $5,000. To understand just how inadequate that limitation really is, just take a drive and count the number of vehicles you pass that are worth more than $5,000. If you were to be in an accident with any of those drivers, you would be wholly unprotected if all you bought was the minimum insurance coverage dictated by your state government.

Liability coverage is another important area to consider when looking at the minimum amount of coverage your state requires. Again, many states have set the bar very low in this regard. The states generally do this for valid reasons, namely to make car insurance more affordable to drivers who are forced to buy it, but those low premiums can come at a steep price.

It does not take many doctor visits or days in the hospital to run up bills in excess of those limits, and you could be on the hook for the excess in the event of a crash.

When determining how much insurance you truly need it is a good idea to look at the minimum mandatory coverage required by your state as only the starting point. If you are a young driver with little in the way of assets to protect, you might be able to get away with the minimum mandated coverage for awhile, but as you accumulate more assets it is a good idea to revisit this decision and make any changes that are warranted.

One of the best ways to determine whether or not the minimum mandated amount of property damage coverage is sufficient is to head out car shopping. Take a look at some of the most popular models and what they cost, then compare the cost of an average new car to the amount of property damage coverage your state requires you to carry. If the amount of minimum mandatory coverage is significantly lower than the price of the average new car, adding additional coverage is probably worth your while.

In fact many drivers are quite surprised at how affordable it is to ramp up from the state mandated minimum coverage levels. It is often quite inexpensive to double or even triple the minimum required coverage levels, so drivers should at least price these options before simply accepting the minimum mandatory coverage in your state.

Car Insurance Rates – How Are They Adjusted after Making a Claim

When you have already purchased your car insurance, you are aware that there are the rates that must be paid monthly, these ones being your coverage for any of the mishaps that can occur to your car and yourself while being behind the wheel. Once you have had an accident and have made a claim that has solved the problem of your damages, you are concerned with the fact that the rates will increase on your policy. And you have all the right to be concerned in this matter although there is nothing to tell you by how much the rates will increase after having that accident.

But one thing is clear: that once you have made a claim with any of the car insurance companies, this one will be displayed in your official record of claims. There is an institution to which all these claims are sent to be recorded, known as Insurance Services Office – ISO. So, if you have ever made a claim with your insurer, then they will send this as a record to ISO database. When you will apply with another car insurance company for reasons of your own, then you should know that they will check for this record before setting the rates on your newly applied car insurance coverage.

So, to make the things clearer: car insurance rates are adjusted in accordance to an actuarial formula. There is with each company an actuarial risk analyst who evaluates the risk presented with a driver who needs to purchase this type of insurance. There are so many other factors involved in the analyst’s research that is rather hard to expose them all. What the actuary will generally consider for evaluating the risk is as follows: accident history, vehicle type, location, age, credit history, employment status, number of drivers, and so on. Then all these data is used within a formula that will eventually set the final rates on the policy.

This formula comes within a system where any change of data is actualized and then updated within the record, this having as well an affect on your rates. So, it is rather hard to say by how much your rate will increase or even if this one will be increased. The only way to find out whether or not the rates will be adjusted after making an accident claim is to contact directly your insurer and ask the question.

There are several of these companies which will proceed into classifying the claims by a point system and thus setting the rates in accordance to these acquired points. It is therefore recommended to ask about this adjustment directly with your insurer as you can’t possibly know what terms, factors and formula their calculation method goes by.

A Brief Guide into Determining the Rates of Your Car Insurance

In case you wonder how much you are supposed to pay for car insurance rates, maybe it is time to properly understand firstly what exactly determines the calculation of these rates. Read on and find out:

  • The first factor is the status of your driving history. Many would say that this one is the most important one in setting the rates of a car insurance policy, as they can go higher if you are considered a high risk driver with many traffic violations recorded on your driving report. This record will also tell a lot on how responsible you can be behind the wheel.
  • How often do you plan to use your vehicle? The mileage recorded on board of your vehicle will indicate how frequent you drive your car. There are people who use their autos for various purposes, while others use them only occasionally. The more often you use it, the more risks can be involved driving in traffic, so the rates of your car insurance policy will be set higher than for the drivers who use their vehicle very rarely.
  • The details of your auto will also matter a lot. You will have to provide information on year of production, make, model, how much you paid for it, and what class your vehicle is categorized into. With more devices for security and safety presented with your car you will get more discounts when the rates will be set.
  • Personal information will reveal details on your residential area which again is important. High crimes areas will attract higher rates for your car insurance. The age, gender, experience in driving, civil status, all these details will influence the setting of the rates. Those drivers aged more than 25 years are seen as more responsible behind the wheel and thus can get lower rates. The same with the married drivers and women behind the wheel will have the rates set for lower costs.

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In this section come as well the details on education and work. And along with all these, the credit history can reflect a more responsible person attracting as well lower rates.

All the information from above describe the important factors that will lead to the final calculation of your car insurance rates. The risk factor is the key factor in setting these rates, since it is all about your car and your responsibility that you have while being out there in the street. The thing is that you are not alone while driving, you can have passengers in the car but also other cars around.

In the case of a collision all these aspect from your driving circumstance will also matter and impact the way your filing for a claim is solved. Speaking of which, a claim has the purpose to settle the scores between you and the others involved in the accident, while needing to pay the damages in accordance to who is found at fault for the collision.