09 February 2017

Car Insurance Basics

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Buying a car insurance policy is like making a contract between you and an insurance company. You promise to pay a certain amount of money on a regular basis. They promise to pay for specific car-related expenses as long as the policy is in effect. Before we get into more detail, let’s define some basic car insurance terms.

PREMIUM
The premium is how much you will be charged for each type of coverage you choose – basically, how much this whole thing is going to cost you. Looking at premiums can help you compare insurance offers and identify possible savings opportunities. Most insurers will give you options for paying your premium, such as paying all upfront or making a down payment (often 2 months worth) and then paying the rest in monthly installments.

POLICY PERIOD
Your insurance coverage is only in effect during the period specified in your policy. Typically, auto policies are in effect for six months or one-year terms. When you are shopping for insurance, be sure you know the policy period.

DEDUCTIBLE
A deductible is the amount of money that you pay BEFORE the insurance money kicks in. Let’s say you back your car into a tree. Your insurance has a $250 deductible (which is low). If the repair bill is less than $250, you pay for the whole thing. But if the repair bill is over $250, then you pay $250 and the insurance company pays the rest. (This depends on your coverage.) If a lower deductible means that you have to pay less money out of your pocket, why not have the lowest deductible possible? The answer is money. With a lower deductible, the insurance company is at greater risk of paying for repairs, so they will charge you MORE for the policy.

EXCLUSIONS
Exclusions are all things NOT covered by your policy. These are important to know before you are involved in an accident.

CLAIM
A claim is a request you make to your insurance company asking them to pay for a loss due to an accident or for other damage (such as theft.)

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