Do I Need Insurance?
In many countries it is compulsory to purchase auto insurance before driving on public roads. In the United States, penalties for not purchasing auto insurance vary by state, but often involve a substantial fine, license and/or registration suspension or revocation, as well as possible jail time in some states. Usually the minimum required by law is third party insurance to protect third parties against the financial consequences of loss, damage or injury caused by a vehicle. Typically, coverage against loss of or damage to the driver's own vehicle is optional.
In the United States, liability insurance covers claims against the policy holder and generally, any other operator of the insured’s vehicle, provided they do not live at the same address as the policy holder and are not specifically excluded on the policy. In the case of those living at the same address, they must specifically be covered on the policy. Thus it is necessary for example, when a family member comes of driving age they must be added on to the policy. Liability insurance sometimes does not protect the policy holder if they operate any vehicles other than their own. When you drive a vehicle owned by another party, you are covered under that party’s policy. Non-owners policies may be offered that would cover an insured on any vehicle they drive. This coverage is available only to those who do not own their own vehicle and is sometimes required by the government for drivers who have previously been found at fault in an accident.
How Your Rates are Determined
The current system of insurance creates groupings of vehicles and drivers (actuarial classes) based on the following types of classifications.
Three Main Considerations
- Vehicle: Age; manufacturer, model; and value.
- Driver: Age; sex; marital status; driving record (based on government reports), violations (citations); at fault accidents; and place of residence.
- Coverage: Types of losses covered, liability, uninsured or underinsured motorist, comprehensive, and collision; liability limits; and deductibles.
Examples
The classifications, such as age, are further broken into actuarial classes, such as 21 to 24 year olds, to develop a unique vehicle insurance cost based on the specific combination of attributes for a particular risk. For example, the following information would produce a unique vehicle insurance cost:
- Vehicle: Age - 7 years old; manufacturer, model - Ford, Explorer XLT; value $ 18,000
- Driver: Age - 38 years old; gender - male; marital status - single; driving record (based on government reports) violations - 1 point (speeding); at fault accidents - 3 points (one at fault accident); place of residence 33619 (zip code)
- Coverage: Types of losses covered; liability - yes; uninsured or underinsured - no; motorist comprehensive - yes; collision - yes; liability limits - $100,000/$300,000/$50,000; deductibles - $500/$500.
A change to any of this information might result in a different premium being charged if the change resulted in a different actuarial class or risk level for that variable. For instance, a change in the drivers' age from 38 to 39 may not result in a different actuarial class because 38 and 39 year old people may be in the same actuarial class. However, a change in driver age from 38 to 45 may result in a different premium because the records of the insurer indicate a difference in risk associated with those ages and, therefore, the age difference results in a change in actuarial class or assigned risk level.
Discounts and Increases
Current insurance rating systems also provide discounts and surcharges for some types of use of the vehicle, equipment on the vehicle and type of driver. Common surcharges and discounts include:
- Surcharges: Business use.
- Discounts: Safety equipment on the vehicle airbags, and antilock brakes; theft control devices passive systems (e.g. The Club), and alarm system; and driver type - good student, and safe driver (accident free); group - senior drivers, fleet drivers .
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