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UPDATED: Mar 13, 2020
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Car insurance is a financial product that protects the vehicle owner on the policy against common losses that can lead to financial hardship.
When you apply for coverage, you will be asked to sign a contract that states that you will pay your premiums and the provider will pay the losses in the policy booklet up to the limits that are on your documentation.
Some car insurance policies offer little coverage, and others will offer broader coverage options that will pay for damages that you cause as well as the damages that you sustain.
While it is considered to be a financial product, policyholders who buy coverage are really paying for service if they are never in a position where they need to use their benefits. What makes car insurance unique from other types of products is that it is something that you buy and hope to never use.
Just because this is an intangible product that is only needed during difficult times does not mean that you should buy a policy is file your declarations page without even reviewing it.
As a protective product and a contract, it is imperative that you know what you are signing up for and how car insurance works.
There are hundreds or even thousands of insurance companies that sell car insurance to the standard and the high-risk market. All of these insurance carriers offer the standard coverages that are required by law and supplemental coverage options and policy features that set their brand apart from the rest.
You need to be familiar with the industry standards and also the claims filing process if you really want to learn what car insurance is and how it works. Read this guide and learn more about what a car insurance policy consists of and what your duties are if you need to file a claim.
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Policy Documentation and What It Is For
The first thing you need to know when you are learning about car insurance is what types of documentation you will receive when you are pricing or buying a policy.
There are various documents that insurers will send you electronically or via the mail, and learning how to differentiate these documents is important.
Here is a description of the documents and what they are for:
What is a car insurance quote?
A car insurance quote, also called a quotation, is an estimate of how much you would pay for coverage if you purchased the coverage through a specific insurer.
To get an accurate rate quote the company will ask for your vehicle information, your personal information and answers to specific rating questions.
It is very important to answer the questions accurately and honestly because it is possible for your rates to change after you submit an application if there are errors or misrepresentations. This is called a misquote. What separates a quote from a policy document is that the quote is not binding and can change.
The quote does not mean that coverage is being provided, it simply shows you how much you should set aside to buy coverage.
Every company has their own unique set of rates, and some companies charge more than others for the same amount of coverage.
This is why it is so important that providers in the marketplace offer their prospective customers free price quotes when they are shopping the market. You can get quotes online, in person and over the phone depending on which way is most convenient for you.
What is an auto insurance ID card?
An auto insurance ID card, or identification card, is your proof of insurance that shows that the vehicle that you owned is insured. The card will show the named insured, the vehicle information, the VIN, the term of the policy, and the insurer information.
It will not describe which coverages are carried or list the premiums that you pay.
ID cards are to be carried in each of your vehicles at all times. You need to present it when you are asked for it by law enforcement, when a rental agency requires it, or when you register your vehicle. Remember that ID cards are not binding.
What is a declarations page?
A declarations page is one of the most important documents you will receive when you buy a car insurance policy. It is the most detailed document that you will receive once a policy is issued.
When you apply for insurance, the application is reviewed by an underwriter.
After it is underwritten and it has been deemed that you are eligible for coverage, the final rates are determined and the policy will be issued based on the effective date that you choose.
The declarations page is sent out when the policy is issued. It will show your name, mailing information, the insurer’s address, your vehicles, the loss payee information, the drivers on the policy, and what coverages are carried on each car.
Next to the coverage options and limits, the declarations page will show how much each coverage costs. It will also show the total policy premium at the bottom of the page.
What is an SR-22?
An SR-22 is a filing that shows that you are financially responsible. Not all drivers need an SR-22 filing through their insurer, but those who do can have their driving privilege revoked if the filing is not submitted to the Department of Motor Vehicles.
If you have been convicted of driving without insurance, driving without insurance, or you have had an accident with no insurance, you will need to ask your insurer for an SR-22. It can be a piece of paper or an electronic filing depending on your state.
What is a letter of experience?
A letter of experience is another document that your insurer will give you upon request. This document will detail how long you have been insured with a company, what drivers have been on your insurance, and whether or not any claims have been filed.
If there have been claims filed, it will show the claims dates, the type of claim, and how much was paid by the insurer.
This is often needed if you want to switch insurers and there are errors on your claims report that you want to fix to keep your rates low.
How does car insurance work when you need it?
If you do not need to use your car insurance coverage, you simply select the coverage that you want, pay the premiums for that coverage, and your risks are transferred if you have an accident or a loss until the term is over. There is a lot more to auto insurance than just paying premiums though.
From the way that a policy is written to what happens when you file a claim, there are processes that you should learn about.
How does the application process work?
After you have compared policies, compared premiums, and selected the coverage options that you feel are best, the next step is to turn your quote into an application.
A quote tells you how much you can expect to pay, but the application will ask for much more detailed information so that it can be reviewed and underwritten.
An underwriter will run your motor vehicle report, your claims history report, your insurance credit score and other reports to verify that your information is honest and accurate.
If they find claims, violations, and other information that does not match the information on your policy, the quote can go up or even be denied before it is issued. Once underwriting is over, you will receive a notice that shows your premiums and that your policy was issued.
How do auto insurance claims work?
When you get into an accident it can get overwhelming when you do not know how claims work. While the process can be different from company to company, you do need to call your insurer as soon as possible to let them know you were in an accident.
The claims adjuster will tell you what you will need to provide which may include police reports, witnesses, pictures and your own statement. Some companies may require you to go to a specific shop, but usually you will be able to choose a shop that has reasonable rates.
There a claims adjuster will inspect the car to assess the damage. If someone was injured and you are at-fault, your company will negotiate with the other party’s insurance to determine how much liability should be paid. It can get complicated if you have to go to court for a settlement but your insurer will pay for your legal defense.
It is now time to start getting auto insurance quotes so that you can price premiums and find the best ones. To do this quickly and efficiently, use our FREE online rate comparison tool below and you can get instant auto quotes in just minutes.