Auto insurance, especially the rates is a very confusing subject matter. This is because there are a lot of factors to consider in determining the premiums paid as well as the total insurance fees.

How it Works

Automobile insurance works by distributing the risk of paying for an insured risk with different individuals. The consumer pays a provider contract fees as well as premiums in order to be able to collect once a risk that is covered occurs. The provider collects from different consumers’ amounts called “premiums” to be placed in a common fund. If a consumer meets with an allied risk that is not exempt he or she collects. If the risk is not met the consumer does not get anything from the provider.

Coverage: Amount and Type

Coverage determines how much the total insurance cost is as well as the premiums paid because it sets the instances when payment will be made as well as the limits to the payable amount. As a general rule the more coverage you get and the higher the limit, the higher the auto insurance. There are of course numerous types of coverage, below are a few of the more popular types of coverage:

1. Liability for bodily injury;
2. Liability for damage to property;
3. Under Insured coverage;
4. Uninsured Coverage;
5. Collision coverage.

Exemptions

This guide will not be complete without discussing exemptions. Exemptions are risks that would otherwise be included in the policy had it not been expressly deemed not included. As a general rule the more exemptions the lower the risk hence the lower the rates. The problem with exemptions is the fact that insurers specifically choose particular exemptions that increase the risk of paying; hence too any exemptions ay defeat the purpose of insurance in the first place. Pay special attention to the part of the policy that discusses exemptions because failure to comply with certain guidelines may exempt a person for otherwise collecting. For example, an otherwise valid claim can be exempted if the automobile used does not meet with certain standards like 2 functioning headlights and tail lights as well as proper use of hazard gear.

Legal Requirements

Insurance is an area of commerce that is imbued with public interest hence the state steps in to provide certain guidelines as well as mandatory requirements. The state may step in to limit the fees such as the case of the state disallowing insurers to charge women drivers with higher fees than male drivers regardless of studies, data and surveys showing different amounts of risk. The state may even require additional insurance to be had by certain individuals. For example, some states require a single liability while others allow a mixed limit. Another example is when the state requires high risk insurance policies for persons who have been found guilty of driving under the influence.

In closing, there are any different factors to consider when computing rates. Regardless of the different factors discussed in this guide, a sure way to limit rates is still to properly understand the concept of insurance. This understanding will be the consumer’s leverage when computing and negotiating for better rates.