Since we are going to talk about insurance, what is it? Why should you spend time reading about insurance? Dont you just call your local agent and he or she tells you what to buy? Since insurance is a very complicated product, lets just talk about insurance for individuals for now.
When you buy an automobile insurance policy, what are you buying? Times up. You are buying a promise. The promise that you buy depends on the type of policy. If you are buying comprehensive coverage or collision coverage, you are buying a promise from the insurance company that they will fix your car if it is damaged. If you are buying liability coverage, you are buying a promise from the insurance company that they will pay for damage you cause as a result of using your car. Liability insurance will be saved for the next post.
Comprehensive and collision are easy concepts. Collision pays for damage to your car if your vehicle is damaged as a result of striking something (except animals). Comprehensive pays for all other damage to your car and is sometimes called other than collision. Comprehensive even pays for the damage to your car if you strike that deer running across the street.
How do they determine your rates? While each insurance company has its own formula, there are some basics. The rate is determined by the type of vehicle you drive, how expensive it is to repair it, and your deductible. Want to lower your rate? The easy way to do that is to raise your deductible. Of course, if you are leasing or financing your car, the lease or finance company probably has a maximum deductible that you can have. Check with them.
At a certain point, it does not make sense to carry comprehensive or collision on your vehicle. Each person’s situation is different. However, when the value of the car is under $1,000 or so, it probably does not pay to carry these coverages any more.
Oh, and dont let anyone tell you that your rates go up for making a comprehensive claim. Insurance companies in California can only surcharge you for an at fault accident.