WHAT IS INSURANCE?
This is a simple contract between you and an insurer. In return for the premium, the insurer pays if you lose money in one of the predicted ways, i.e. the insurer estimates the risk and sets a premium that will produce enough money to pay out should you claim.
HOW IS RISK ASSESSED?
This is mainly based on your personal driving skills. If you are inexperienced, the risk of an accident is high. With ten or more years experience, the risk should be at its lowest. As you age, reflexes slow and your eyesight worsens. The premiums will rise even if you drive more slowly to avoid accidents. But insurers look at where you live. Some areas have a bad record when it comes to vandalism and thefts. There will also be questions asked if your credit score is low. To get the best rates, you should have no claims or moving-violation tickets, live in a good area and be responsible with money.
WHAT ARE THE MAIN FORMS OF COVER?
In all but three states, it is mandatory to carry a minimum liability cover, i.e. you have a policy that pays out if you injure a third party or damage someone else’s property. Uninsured drivers are fined if caught. Some states also impound the vehicle until you prove you have the minimum coverage. Minimum liability cover is acceptable if you own a low value vehicle. But if you have an auto loan, the lender makes it a condition you carry both collision and comprehensive cover. As the name suggests, collision covers the cost of all your repairs unless this would be more than the value of the vehicle. If your vehicle is totaled, all you get is the replacement value, i.e. the price of a vehicle of the same age and condition. Comprehensive pays for losses caused in any other ways, e.g. because your vehicle is stolen or swept away in a flood.
WHAT OTHER COVER IS AVAILABLE?
The most expensive consequences of an accident are the medical expenses. In some states, it is mandatory to carry personal injury cover. Without this cover, you risk a big bill for your own treatment. Second, there are an increasing number of uninsured or underinsured drivers. It’s therefore good value to buy cover against the risk that the at-fault driver has no insurer to pay for your treatment or repairs.