Auto Insurance Basics

To be honest with you, there are many ways to structure an “auto insurance basics” article.  Our goal with this one is to provide some insight into how an insurance company works; the difference between an insurance company and an insurance agency; and some things to keep in mind when you have a need for their services.

1. What’s the difference between an insurance company and an agency?

This confuses the brightest of people, but it’s really quite simple.  Nationwide, Safeco, The Hartford etc.  These are companies.  They are the ones that will actually pay for damages in the event that you have a claim. 

How about MAIF (Maryland Automobile Insurance Fund)?  It’s a company that happens to be owned by the state of Maryland.  If you are insured by MAIF, you purchased your insurance from an agent.

An insurance agency sells you the insurance and in many cases will service the policy too.  Many people take full advantage of agents because they want a “go-to guy” (or gal), when they have a question or need to make changes.  You will probably find that over the years you will get to know your agent, but rarely will you have the opportunity to meet your company other than through an 800#. 

2. Your rates are based on facts.  When you take out a new auto insurance policy, your rates are based on a set of factors including, but not limited to where you live, your age, your driving record and the type of car you have.  

Your renewal rates (rates you are charged after your first year with the company) are affected by your payment record (don’t be late), driving record (don’t have an accident for two to three years and you may reap the benefits of lower rates) and the financial stability of your company.

You see, insurance companies gather a ton of information about us.  They survive by identifying risk levels and placing a price on those risks.  In the case of auto insurance, they have identified certain age groups, zip codes and cars that when combined, make up a profile.  This profile determines the rate.  To lower yours, pay on time and drive safely.  This means no tickets, no accidents and no late payments. 

3. Insurance company rates do differ. Not all companies have the same rates, which is great, but, and there is a “but.”  If you have a less than perfect driving record and/or have been cancelled for lack of payment, there may be some variation in rates, but know that all of them will be high. 

But it does pay to get rates from different companies to make sure you’re getting the lowest rates you can.

4. Ask for all applicable discounts.  Don’t use your car for work?  Great, that could result in lower rates; drive 5,000 or fewer miles per year? (Answer honestly, they will check.) That’s great news, because that could help to lower your rate.  Do you have an alarm system in your car?  This also could result in a discount.  There are other discounts that might also apply to you; make sure you ask your agent for all applicable discounts.

5. If you have an accident or another type of claim keep accurate records.  You would be surprised how beneficial organizational skills can be.  In the case of an accident, record the other driver’s information and put it in a place where you will not lose it.  Take pictures if you have a smartphone or camera. 

When it comes time to repair your vehicle, work closely with the appraiser to make sure that you receive quality replacement parts.  The appraiser is trying to save the insurance company that he/she works for money, so it’s your job to look out for you.

Here is how to help yourself when it comes to auto insurance.  Do your research by comparing rates, pay your bills on time and drive carefully.  If you do these things consistently, in a year or two you will see lower rates.

Thanks for the CNN Money column for the inspiration for this article.