The Truth About Auto Insurance Part 1

By Anthony Ray 7/9/2021

Did you know that auto insurance is required by law in almost every state? Did you know that even if you do not own a vehicle and drive on occasion that you should carry an auto insurance policy or at a minimum be added onto another person’s policy as a driver? There are a lot of people who are unaware of these laws, but there are even more people who do not know how auto insurance works. I am a licensed agent and have been for over 4 years. Let me give you an overview of auto insurance and what you should know prior to shopping for an auto insurance policy.

Everyone’s auto insurance needs are different based on their financial situation. You must ensure that your coverage needs are met prior to getting behind the wheel. Accidents are never scheduled. If they are, then that is fraud.

Every state regulates their own insurance. This means that coverage requirements will vary from state to state. A very important fact is that your vehicle must be registered in the state where you live. Meaning if you live in Arizona, then your vehicle should be registered in the state of Arizona. Registered in the state means your license plate for your car is from Arizona. If you live in Arizona and your car is registered in California, then Arizona does not know that your car is insured. With each state regulating their own insurance, they do not communicate between each other to inform the other that you are insured in their state. States are not required to report this information. Since they don’t report this, then in the eyes of your state you do not have insurance.

 

Auto insurance is to protect you and other drivers. It is very important to ensure that you have enough coverage to protect you, your passengers, and the other parties involved.

Failure to carry the state minimum liabilities can result in fines, suspension of your vehicle registration, and suspension of your driver’s license. Penalties for driving without vehicle insurance vary from state to state, but can range from being arrested to receiving a citation. In some cases, you will be ordered by the state to carry what is called an SR-22. This is a state mandated filing of financial responsibility. The SR-22 is mandated to be carried for a specific amount of time ranging from one year to 3 years. Along with penalties and fines assessed by the state, if you have a lapse in coverage, or cancel your policy, the courts will suspend your driver’s license and impose more fines. There is no break in the term for an SR-22. If you are required to carry it for 3 years and you have a lapse in the SR-22, then you will have to purchase it again and carry it for the full term.

The price of the policy is determined by several factors. I don’t want to get too deep here. I will speak about how insurance companies rate you as the driver. Some insurance companies will use elements of your credit report to assess your financial risk in regards to how you pay your bills. Most do not use your credit score or apply a hard inquiry on your credit report. They use what is called an Insurance Score. The Insurance Score will compile information similar to a credit report, but it is about your insurance history. This will include information regarding your driving history, history of where you lived, how you handled your prior insurance policies (completed the full length or let it cancel for non payment), payment history, and etc. You should take the same care that you take in protecting your credit score to protect your insurance score. Credit bureaus have a role to play in the Insurance Score. They share data with the insurance companies to update your profile. Each insurance carrier may use a different reporting agency. Transunion and Lexis Nexis are two companies who are used in reporting and tracking information in your insurance profile. Just like checking your credit report for errors, you should check your Insurance Score for errors. The process is similar to filing disputes for errors found on your credit report that you should follow in the event that you discover errors affecting your insurance score.

Now that we have reviewed the Insurance Score, let’s discuss some other factors that carriers use to rate your policy. Your zip code plays an important role in your premium. Your zip code is used to determine how many drivers are in the area, how many claims occur in the area, and what other issues occur. Other issues will include damages caused by nature, storms, thefts, vandalisms, civil unrest, and the list goes on. Your driving history is reviewed. How long have you been driving? Have you had any tickets or accidents? Have you reported any claims? What type of vehicle do you have? Is this a safe vehicle? How much damage can this vehicle cause if involved in an accident? Is the vehicle a high theft vehicle? How much will it cost to repair or replace this vehicle? So much is considered when rating your policy. These are the things that you should consider when vehicle shopping and insurance shopping. You should never buy the vehicle without first shopping for an auto policy. You don’t want to pay more for insurance than you do for the vehicle. More times than you would think, people purchase a vehicle without any idea how much the insurance will cost. Based on their insurance score, they find themself owning a vehicle they cannot afford to insure.

You must know the cost of insurance before buying the vehicle or else you could have a vehicle that you can’t afford to insure.

You should consider that there are a lot of variables that go into shopping for auto insurance. Take steps to ensure your driving history is correctly reported. Once you discover any errors when you receive a quote, immediately go to the sources to get your information corrected. The local DMV, Department of Motor Vehicles, can provide you with a copy of your driving history. They have a process to get erroneous information removed. Be mindful that the DMV is a state governed agency and correcting errors will require legal documents to support your claims. This will also require time to resolve. Most of these type of issues are not corrected overnight. In these situations, begin you quest online first and then reach out over the phone to save you from a wasted trip there in person.

Check out The Truth About Auto Insurance Part 2 for information on the different types of auto policies and coverages. There is a lot of information and this is broken up into three parts. Please leave a comment and send any questions to preponpurp@gmail.com. Follow Preparation With Purpose on social media on Facebook, Instagram, Pinterest, and Twitter.

References:

thebalance.com Car insurance

Progressive.com Types of Car Insurance

Transunion.com

LexisNexis.com

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