How Does Auto Insurance Work?

How Does Auto Insurance Work?

Questions on this page deal with how insurance companies generally sets rates and what's covered by insurance policies.


  How does a auto insurance company set my premium?
   When can my auto insurance rate increase?
   How do speeding tickets or "points" affect my auto insurance rate?
   When do auto insurance companies check driving records?
   Will my auto insurance premium go up if I report an accident to my insurance
      company for which I was not at fault?
   Will adding a teenage driver to my insurance policy raise the cost ?
   Will having a child in college affect my auto insurance rates ?
   Will marrying someone with a poor driving record affect my insurance rates?
   Why do auto insurance companies ask for information about credit history?
   How do I get the most car insurance coverage for my dollar?
   If someone borrows my car, are they covered under my insurance policy?
   Is my American auto insurance valid in other countries?
   Will my auto insurance policy cover me if I rent a car?
   Am I covered for a car accident that happens in another state?

1. How does a auto insurance company set my premium?
Insurance companies take a lot of factors into consideration. These include where you live, the kind of car you drive, your age and gender, the level of coverage you want, and your driving record, among other things. The last two factors have the biggest influence on the premium you pay, although all are important.
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2. When can my auto insurance rates increase?
Whenever you renew your policy, apply for a new one, change drivers or vehicles, or are involved in an accident or traffic violation. When your state allows a rate increase, all the insurance carriers will likely raise their premiums. (This has happened a lot in recent years, and is expected to happen even more in the future, so don't be surprised.)
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3. How do speeding tickets or "points" affect my auto insurance rates?
If your provider asks for an update on your driving record, points or tickets will increase your rate. But you aren't bound to inform them of a ticket, so if they don't increase your premium, just sit tight.
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4. When do  auto insurance companies check driving records?
Whenever you apply for a new insurance policy, they'll check. If you're renewing your policy, or adding a new vehicle or driver, they might.
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5. Will my auto insurance go up if I report an accident to my insurance company for which I was not at fault?
It shouldn't. However, if you've had several such accidents in a relatively short period of time, your provider might assume that there is something reckless about the way that you drive, and increase your premium.
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6. Will adding a teenage driver to my insurance policy raise the cost?
Probably. Teenagers fall into the age group that statistically drives the most dangerously. However, you might be able to earn a discount if your teenager is a good student or drives an older model car. (And if the car is old enough, you won't need to carry collision and comprehensive on it, further reducing costs.) Learn more about teenage car insurance.
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7. How will having a child in college affect my auto insurance rates?
If your child is attending a school over 100 miles away without a car, your premium should decrease. However, if they'll be bringing a car with them, they should probably be listed as the vehicle's primary driver, and that may cause a slight increase in your auto insurance premium.
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8. Will marrying someone with a poor driving record affect my insurance rates?
If you share the same policy, yes. But you could cut costs by getting two policies and carrying less optional insurance (collision and comprehensive) on the high-risk driver's vehicle.
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9. Why do auto insurance companies ask for information about my credit history?
It's been shown that, all else being equal, drivers with poor credit are more likely to file claims than drivers with good credit. The theory is that people who are careful with one aspect of their lives (money), are more likely to be careful in another aspect (driving). It is, however, illegal for insurance companies to use this information in a few states.
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10. How do I get the most car insurance coverage for my dollar?
Keep your deductibles high and your liability limits high. You'll get a lot more coverage for your cash that way.
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11. If someone borrows my car, are they covered under my auto insurance?
If they are a licensed driver with your permission to use the vehicle, yes.
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12. Is my American auto insurance valid in other countries?
In Canada, it is. In Mexico it probably is. In the rest of the world, it isn't. However, Mexico's liability laws are a little different from ours, so it's not a bad idea to get a temporary Mexican policy if you'll be traveling there by car.
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13. Will my auto insurance policy cover me if I rent a car?
You'll usually automatically have the same level of coverage on the rental car as you do on your standard policy. (Check your policy for details.) Paying for the rental car with a credit card can offer even more protection. However, be aware, that in the event of an accident, the rental company may charge additional administrative, loss of income, and replacement cost fees that your standard policy won't cover. So buy the additional insurance if it makes you more comfortable.
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14. Am I covered for a car accident that happens in another state?
An American car insurance policy is good throughout the country. However, some policies change their coverage a little depending where you have an accident. (Michigan does this, for example.)
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