Auto Insurance

By: Trevor, Brittani and Raul

Basics

What is Auto Insurance?

It is coverage for you in the instance of an accident or crash involving your vehicle. It is a contract between you and an insurance company deciding how much money you will pay and receive.

How does it work?

You pay a premium in exchange for the insurance company paying for specific car related financial losses during the term of the policy. You also agree to pay a deductible every time you make a claim for damage. The cost of the insurance is usually based on the risk of you needing the insurance.

Deductible

A deductible is the amount of money you agree to pay out of pocket towards costs involved with an accident or damage. The deductible is the part of your policy that you are responsible for paying because auto insurance policies don't simply take care of all your expenses. You are required to pay for some of the damages, but the amount depends on your policy. Deductibles vary by state, but are most often in amounts of $100, $250, $500 or $1,000. The insurance company then will pay what ever costs are remaining after the deductible.

Why get Auto Insurance?

It is now a law that everyone who owns a car is required to have Auto Insurance, otherwise a fine is enforced.

Determining Risk and Premiums

Risk-Premium Relationship

Low risks will be charged a lower premium and high risk will be charged a higher premium. The insurance company wants to determine if they will need to provide you with a lot or a little money.

Age

Younger drivers have risk because they are inexperienced and are more likely to engage in dangerous behavior. Elderly drivers have a high risk because they have diminished eye sight and slower reflexes. So these two age groups would usually see an increase in premiums.

Gender

Men tend to drive farther and are also more likely to engage in risky road behaviors than women. 2/3 of teenagers killed in auto accidents are males but the risk gap between males and females continues to get smaller.

Vehicle Type

Expensive, high performance cars always cost more to insure simply because they are more expensive. More protective cars with better safety features are less risky and less expensive to insure.

Driving Record

Statistics show that people follow patterns of established behavior so the insurance company will increase your premium if you get into accidents or get dangerous driving tickets. It usually takes 3-5 years to prove to the insurance company that they should lower your premiums after getting violations. Some companies even offer deals specifically for driving safely.

Geographic Location

Where the cost of living is high, the cost of insurance is higher. Urban areas are almost always higher in accidents than rural areas, but fatal accidents are more likely to happen in rural areas due to higher speeds. So where you live is also among the factors that go into account when companies establish your premium.

Credit Score

A few companies base the premiums only on customers credit scores. This is wrong because there is no correlation between credit score and good or bad driving.

Reducing Risk and Lowering Premiums

Safe Driving

  • Use your seat belt
  • Observe speed limits
  • Know your own limits
  • Concentrate only on driving
  • Be patient
  • Don't drink and drive

Raising Your Deductible

By raising your deductible you put less risk on the insurance company and more on yourself so your premiums will decrease. Decide how much you can afford to spend out of pocket, and then adjust your deductible accordingly.

Exclude Collision

Getting rid of the collision coverage would be smart only when you have a cheap or paid-for car, because in the case of a collision it wouldn't be worth paying the extra amount in your premium for the amount the insurance company would pay.

Driving Less

If you don't drive often or you carpool, simply letting your insurance know about it can result in a lower premium since less driving is less risky. This may be known as the low-mileage discount.

Buying the Right Car

Before buying a new vehicle you can call your insurance agent to find out how much it's going to cost to insure the vehicle. Since premiums can vary widely based on the make, model, year, and safety of your vehicle, smart shopping can really pay off.

Student Driver Discounts

Insuring a teen driver can be expensive, but you can ask about a good-student discount if you maintain a B-average. Also you can check to see if taking a safe driving course will result in a discount. These two questions could net you a savings of 5 to 25%.

Bill Pay Type

The high cost of insurance may make paying monthly seem like a good idea, but you'll actually have to pay for the convenience with add-on fees. To avoid these extra charges, request to be billed every 6 or 12 months instead and auto-billing will save you even more.

Protect Your Car

Keeping your car in a garage and cars with alarm systems are less likely to be stolen, and therefore less expensive to insure. Be sure to ask your insurance agent if your car qualifies for a theft-deterrent discount.

Texas State Laws on Auto Insurance Requirements.

Car insurance Requirements.

Texas requires you to be able to pay for any damages and injuries from a car accident you caused. Most people buy liability car insurance to fulfill this law.

If you choose to buy liability insurance to comply with the law, your policy must have the following minimum limits:

  • $30,000 for each injured person.
  • $60,000 for injuries per incident.
  • $25,000 for property damage.

Other Car insurance

Texas only requires that you have liability insurance, but you can get other insurances such as collision, comprehensive, etc. that help cover you financially.

If your car is being financed, your lending or leasing company will require you to carry both collision and comprehensive coverage for your car.

Proof of Insurance in Texas

Your car insurance company will give you an insurance card to use as your proof of car insurance. You must show a proof of insurance when you:

  • Are asked for it by a police officer.
  • Get into a car accident.
  • Register or renew your car’s registration.
  • Apply or renew your driver’s license.
  • Have your car inspected.

You should get a new insurance card from your carrier every time you renew your auto insurance. Most companies have a 6 month policy.

Liability and Collision Coverage

Liability

Liability insurance covers the damage that you cause someone else in an accident. This insurance pays for the damage of the other person's car and medical bills even if the accident is your fault. Each state sets its own minimum limits (minimum maximums) that drivers must maintain on their car insurance policies. These minimums are typically expressed in a 3-tier system: 25/50/15, for example.
  • 25 – The maximum amount (in thousands) the insurer will contribute toward injury-related expenses per person
  • 50 – The total amount the insurer will contribute toward injury-related expenses per accident
  • 15 – The max amount the insurer will pay for property damage for each accident

When you buy your policy, you won't be able to select limits below your state's minimum requirements, but you can always set limits that are higher.

Liability coverage generally breaks down into 2 main categories: bodily injury and property damage.

Collision

Collision insurance is a type of insurance policy coverage that protects you from the financial loss associated with having to repair or replace your car when an accident occurs. It offers a more complete coverage, but is not a requirement. Collision insurance protects your car anytime its being driven. If you get in an accident with another individual, collision coverage pays for your car repairs, even if its your fault. It also covers if you get in a single person accident.