For the first timer, auto insurance can be a complicated matter. Being of a profit-oriented nature, some insurance companies prey on the dim-witted, the easily fooled who is willing to cough up any amount just to get that insurance.
Don’t get me wrong, auto insurance, actually all insurance, for that matter, is designed to help us out. The purpose of insurance is to aid people who are not able to take full financial responsibility of certain expenses. Insurance is here to help, for a price. Just make sure you’re paying the right price for the right insurance. That being said, here are some technical terms in the business of insurance that you, the soon to be insured, should be familiar with:
Premium or insurance premium is the actual amount of money you have to pay to get active insurance, or be insured. This amount is based on a lot of varied factors. The way it works is you’ll sit down with an insurance agent (or broker) and made to answer a lot of questions that will determine how high or how little your premium will be.
These questions will be based on age, geography, driving history, etc. –all statistical factors that can tell the insurance company how much of a risk you as a driver will be. The first rule here is to never lie; insurance fraud is a federal offense. The trick here (or actually, what’s recommended by most experts) is to compare and contrast the premium requirement of different insurance companies before you commit to any plan. And always remember: while a lower premium may be more of a bargain, they also cover lesser expenses than a higher premium.
The deductible is the amount of money taken from your own pocket in the event of any incident which would cause your insurance to kick in. For instance, you were in an accident that costs $10,000, with your deductible being 10% –this would require you to shell out $1000 or 10% of the cost, leaving the insurance responsible for the remaining $9000.
But that’s not all. Say your minimum deductible is $500 and your maximum is $3000. If the accident costs just $3000, you’ll have to pay $500, and not the percentage cost of the deductible. Likewise, if the accident costs $60,000, the maximum amount of $3000 is your deductible. Sometimes insurance companies use percentage factors, sometimes minimum-maximum policies, and sometimes both. Read up on these before getting any insurance.