Car Insurance Explained: Everything You Need To Know

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Some people don’t understand the need for auto insurance, which can leave them personally exposed and cause significant financial problems in the event of an accident. Auto insurance is mandatory in nearly all states, except New Hampshire, which still requires financial responsibility. Here is our guide to car insurance explained to help you better understand the important of buying the right coverage.

What Are the Components of an Auto Insurance Policy?

Every insurance policy has components that you need to understand, such as:

Premium: Amount you pay for your coverage, with payments set monthly, quarterly, or semi-annually.

Deductible: Your insurance
 © Dreamstime/Dreamstime/TNS Allstate is reducing auto insurance rates for Illinois policyholders by an average of 5%, according to filings with the state Department of Insurance.

Allstate is reducing auto insurance rates for Illinois policyholders by an average of 5%, according to filings with the state Department of Insurance.

Though driving levels have picked up from last spring, when a statewide stay-at-home order left streets and highways empty, miles driven are still about 10-15% below pre-pandemic levels, Allstate said in the filing.

The pandemic has changed day-to-day routines for many people, leading to a rise in online shopping and remote work, which has meant fewer drivers on the road, the insurer said.

“Once the pandemic recedes, we expect these conditions to abate although it is possible the pandemic has led to some long-term changes in behavior,” Allstate said.

There are other changes that could increase or decrease future mileage levels, the insurer said. That includes the effectiveness of a COVID-19 vaccine, commuting behavior, gas prices and spikes in coronavirus infections that could lead to more restrictions.

Last year, Allstate issued a rebate of about $1 billion to its auto policyholders nationwide because fewer drivers were on the road. Rival insurers including State Farm made similar commitments.

In June, State Farm said it would cut auto rates in Illinois by 13.7% as part of a nationwide rate reduction. At the time, the insurer said it estimated 2.8 million people would save a total of $320 million because of the rate cut.

“Our rates remain below pre-COVID levels after announcing a nearly 14% reduction last year in Illinois. We are continuously monitoring and adjusting trends, making sure we’re accurately matching price to risk in order to minimize the impact on customers as much as possible,” State Farm spokeswoman Gina Morss-Fischer said in an email Friday.

Progressive increased auto rates by an average of 4.2% for most of its Illinois policyholders in the fall, after having lowered them by about 10% in the summer.

Cheap Car Insurance After Accident: All You Need To Know

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Today, many people worry about getting cheap car insurance after an accident. We often believe that all insurance companies will punish us because we made a mistake. However, you can still get a good deal, even if you have a less-than-perfect driving record. You just need to know where to look.

How Does Bad Driving Affect Your Car Insurance Price?

Your car insurance price is affected by the severity of the offense. One driving ticket over a couple of years will not make a huge difference in your price. However, if you are a ‘repeat offender’ or had multiple accidents in the past, you can expect your insurance price to rise.

The price increase will depend on how much risk the insurance company thinks you present. If you are found to have caused an accident, your premium can go up by up to 50 percent. If you are not at fault, you could still be facing higher rates.

Other Factors Insurance Companies Consider When Giving You a Price

Your driving history is not the only thing that insurance companies consider when giving you a quote. They will assess your risk levels based on the following additional factors:

Your age

Your occupation

Your credit rating

How long you have been driving

Your location

The number of miles you drive each year

The safety of your car

You can get a list of safe cars based on their safety ratings on our blog.

Does Your Insurance Premium Go Up After An Accident?

Your premium will most likely go up after an accident. You cannot expect your insurer to put you in the same risk category as before the accident, no matter how small it was. You will have to pay more, but the good news is that you can compensate for the price increase by applying for different discounts.

Insurance companies will consider different factors when changing your price after an accident, such as the severity of the accident, who was at fault, your driving record, and why the accident occurred.

No matter what caused the accident, if you get a driving citation, and you have multiple violations, you will be put in a higher risk category.

How To Get a Cheap Car Insurance After An Accident

After your accident, you might need to get an SR22 certificate (Certificate of Financial Responsibility) to prove that you have valid insurance. This is when your insurance company gets notified. It is crucial that you notify your insurance company of every accident and incident, no matter how small it is. It is better to be open and honest.

You will also be required to file a claim for the accident with your company. The accident investigation will assess your role, the amount of damage, and who was at fault. Read our guide on insurance claims on our blog.

Next, you will need to contact your current insurance company and ask them to work with you. Some insurance policies have an accident forgiveness clause attached. Ask them if you have this, so your price can remain the same. If you don’t have the clause, you need to know what the new price will be so you can start shopping around. Once you have the quote from the company, go to the major companies’ websites or a price comparison engine. National companies that offer quotes online include USAA, GEICO, State Farm, Nationwide, and Progressive.

Once you have shopped around, and you still think that the increase is too high, you might decide to change your policy or prove to your insurance company that you are taking safe driving seriously. Taking a defensive driving course can significantly lower your premiums.

If you want to improve your price, it might be a good idea to track your driving. The longer you can keep a clean record, the better discounts you will be entitled to later on.

The Reason for the Accident Determines Your Car Insurance Price

If you are the at-fault driver, you will need to pay an extra surcharge with every insurer. If you had a DUI and are facing prosecution, you are likely to have more problems getting a good price than having a small collision that was not your fault. If you were driving a high-power vehicle, you are considered to be a high-risk driver, too. For more information, read NerdWallet’s guide to high-risk driver categories.

If your car insurance lapsed before the accident, you will not only have to pay the damage yourself, but you will also need to take the blame and pay higher premiums in the future. You can also have your license suspended and be charged with a Class C or B misdemeanor.

Getting Good Car Insurance with a Bad Driving Record

Your driving record is not the only factor that determines your insurance cost. There are some ways you can compensate for your mistake. You can apply for other discounts, even with a bad driving record. Here are some tips to reduce your premiums:

Shop around to get a price from different providers. Some companies specialize in insurance for less-than-perfect driving records.

Work on your credit rating. This will reduce the overall risk for the insurance company and the price you get, too.

Get a discount based on your occupation, your military association, or your grades if you are a young driver.

Change your deductible amount. This will lower the premium and can save you up to 30 percent.

Lower your coverage. If you cancel your comprehensive coverage or your collision insurance, you can get a better price.

Apply for loyalty discounts. Some companies will offer you a lower rate if you have been a customer for a number of years.

Take extra driving lessons. This will not only help you drive better but will also reduce the risk for the insurance company, so they might drop the price.

Get a driving monitor system. This will automatically trigger a discount with some insurance providers.

Get a smaller and safer car. A less expensive car will also help you save.

If you think that having an accident will make your car insurance automatically go up, you may be pleasantly surprised to know that isn’t necessarily the case. When you understand what factors affect your rate, you can keep potential increases in check.

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deductible is what you pay out of pocket before your insurance pays anything. Your deductible applies in each claim, and your rates will be higher if you opt for a lower deductible.

Coverage amounts: How much your insurance will pay out per accident or claim.

Claim filing: Directions on how to file a claim.

Common Types of Insurance Coverage

Understanding your options for available types of insurance coverage is important when you are purchasing a new car or shopping around for insurance. Some coverages protect you, your passengers, and your vehicle, while others protect you if you cause injuries or damages to another party. According to Allstate Insurance, the six most common types of coverage you can purchase are:




Uninsured/underinsured motorist

Medical payments (MedPay)

Personal injury protection (PIP)

According to Progressive Insurance, some of these coverage types are mandatory, while others are optional. Familiarize yourself with your state’s insurance regulations so you can narrow down your options when insurance shopping.

Collision Coverage

Collision coverage will cover damage to your vehicle while driving. If you hit another vehicle or a stationary object, collision coverage will cover the repairs to your vehicle. For example, if you need your windshield repaired because your vehicle flipped over, collision coverage will apply. However, collision will not cover anything related to the other property damage you caused. Collision is not necessarily a state-mandated coverage, but Wallet Hub points out that your financing company might require it if you have an outstanding car loan.

Comprehensive Coverage

Many people purchase comprehensive and collision coverage together, but they are distinctly different. For one, comprehensive doesn’t cover accident-related damage to your vehicle. Comprehensive covers damage from causes such as natural disasters including hail, earthquakes, fires, and floods, among others. If your vehicle is stolen or vandalized or is damaged by contact with animals, comprehensive will cover the damage.

Liability Coverage

Liability insurance protects you from any accidents that are your fault. If someone else needs medical attention or has property damage, your liability coverage will cover their damages. Liability coverage is required in most states. Liability coverage has three main aspects, and each has a different policy limit:

The maximum coverage amount that any one person can receive in an accident.

The total amount of coverage for all injured parties in an accident.

The maximum amount of coverage for any property damage in an accident you cause.

To better understand the breakdown of limits, use the example of 15/30/5. What that means is that $15,000 is the maximum for only one injured person, $30,000 for all injured parties, and $5,000 for property damage.

Uninsured and Underinsured Motorist Coverage

Uninsured motorist (UM) and underinsured motorist (UIM) coverage is usually sold together as a bundle. UMBI will cover your injuries if an uninsured motorist hits you. UMPD will cover your vehicle damages if you’re struck by an uninsured motorist. UIM will provide additional coverage if the at-fault party didn’t have high enough policy limits to fully compensate you for your damages.

Medical Payments (MedPay)

Medical payments coverage is similar to personal injury protection, but is much more limited in its coverage scope. MedPay will cover medical expenses for you, your passengers, household members, and any other policyholders. It can serve as a supplement for those who have health insurance that covers accident-related expenses. For those who do not have health insurance, it’s a good substitute. MedPay can also cover your deductibles and co-pays for other polices you have, such as your health insurance.

Personal Injury Protection (PIP)

Personal injury protection (PIP) is often referred to as no-fault insurance. PIP is mandatory coverage in states with no-fault accident laws. PIP will cover your injuries and expenses in the event of an accident, regardless of who is at fault. Coverage will extend to other drivers you list on your policy, household members, and other passengers. PIP coverage is more expansive than MedPay and may cover loss of earnings, child care, funeral expenses, and more.

Factors That Affect Your Insurance Premium

How Stuff Works points out that numerous factors can influence your potential car insurance rates. You should familiarize yourself with these factors to better understand how your premiums are calculated. Some of the most important factors include:

The type of vehicle you drive. Some vehicles cost more to repair, are higher theft risk, etc. You can compare vehicles and see the premium differences by using an online tool such as the car insurance calculator tool from Cover.

How many miles you put on your vehicle each year. If you commute further, your premiums could rise because you have a greater risk of an accident.

How clean your driving record is.

Where you live. If you live in an densely populated area, theft and vandalism increase. Rates will also vary state to state based on medical costs and litigation expenses.

Your age. Drivers who are under 25 or older than 65 typically pay higher rates for insurance.

Your sex. Men are typically considered higher risk and often drive vehicles that are more expensive to insure.

The length of your credit history. Younger people have shorter credit history and typically pay more in premiums.

Your marital status. Married people often pay a lower premium amount because they are lower risk but also typically have multiple policies with the company.

The coverages and deductibles you choose.

Number of prior claims.

Your insurance history. Any gaps in coverage will cause your premiums to increase.

The main purpose you use your vehicle for. If you drive your vehicle for business, you will need higher coverage. If you drive for rideshare companies, you will likely need a separate policy.

When you’re ready to purchase auto insurance, be sure to keep these factors in mind. Before buying a policy, get a few quotes for comparison and figure out which company gives you the right amount of coverage for what you can afford.


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Allstate Cuts Auto Insurance Rates By 5% In Illinois As Driving Remains Depressed Almost A Year Into The Pandemic

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