Personal Finance and Investing

Did you know that you can actually learn how to compare quotes? Everyone knows that car insurance is a must and that it is a good idea to compare insurance quotes before signing on the dotted line. But what many people do not know is the fact that now it is easier than ever to compare the rates from different companies. This comparison helps you to get cheap car insurance and also maximum cover.

Understanding the insurance process:

Most of the companies in the auto transport industry have websites that offer free and instant auto insurance quotes and all you need to do is to assimilate them, compare them and make your choice. There are also websites that compare the rates from different companies for you, but you need to be doubly sure of the authenticity. Even though some sites show you many rates it is possible that all the rates are from maybe one or two companies. So do no blindly trust any site without checking its authenticity.

Instead it is always a good idea to get the quotes from different sources on your own instead of depending on a site that you cannot completely rely on. One thing that you need to remember is that when you collect the quotes; take them from both – car insurance companies and the underwriters of car insurance. This gives you a wider choice and a more accurate idea of the rates and services that are popular in the market so that you get the best possible deal at the best possible price.

Comparing underwriters and retailers

A company that agrees to take on the risk of non payment is known as the underwriting company. In the event that you suffer damage to your car, the underwriting company is supposed to pay you. This is because the underwriting company has taken the risk upon itself and this company sets the price for the policy. The Insurance Retailer on the other hand is the company that sells the products of the underwriters to the customers.

For every sale the retailer gets paid a commission and they are also expected to provide the necessary service to the customers. The price that the retailers charge is usually identical to the price charged by the underwriter. As a sensible customer you are expected to know who these two entities are and what are the services provided by them. Some people are satisfied with few quotes and they choose one which they think is cheap car insurance.

If all the companies that you have collected the quotes from have the same underwriting company then in effect you are getting auto insurance quotes from the one company because it is the underwriting company that fixes the prices for the insurance policy. Therefore to compare insurance quotes remember to get quotes from different companies that are under different underwriting agencies and then you are likely to get the best quote along with the best services. Prudence and research go a long way to safeguard your interests.

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Lets start off with a simple explanation of how insurance works. In the good old days before those kind men got together in the Lloyds coffee shop, people were responsible for their own losses. If the horse pulled their cart into a ditch and this broke the wheel, the owner had to put his hands into his pock’ets (which fortunately had already been invented) and pay someone to repair the wheel. But once people could share the risks, life was suddenly better. If you gather together a big enough group of cart owners, each will only have to pay a small amount into the central fund to cover the losses of the few who have accidents. Those men at Lloyds were on to a winning business formula. Moving into modern times, the idea of spreading the risk is the same and, with thousands of people in each group, the cost of loss is divided into small premiums. But, with profits under pressure, the insurance companies came up with a new variation on the old theme. Suppose they could persuade their customers to accept the risk of some of their losses. This would then become self-insurance for part of the risk. The rest would be paid by the insurance companies. So the deductible was born. You agree to pay the first portion of any loss. In the case of traffic accidents, most of the fender benders are minor and don’t cost much to repair. That means you pay for most of the repairs yourself and the insurance companies get richer. Ironically, if no-one opted for the deductible, the increase in the premium for everyone in the group would be trivial.

So let’s get to an actual example to see how it works. If you agree to accept a deductible of $1,000, you will be given a discount on the premium. Say you save 10% over the year. Now that’s a good saving if you manage to get through the year without having an accident. But suppose your luck is not good and you have an accident. The bill for repairs is $900. You put your hand in your pocket (pockets are such useful things – always seeming to have money in them) and pull out the dollars. Was your 10% saving over the year more than $900? If not, you are making a loss, not just on the insurance policy but, if you had to use your credit card, on the interest added to the $900 until it is paid off. What would happen if your run of bad luck continued and you had a second accident in the year? Do you have another $1,000 as savings or available to borrow? Perhaps we should not be so pessimistic. Worst case scenarios are always better applied to other people and never to you.

The higher the deductible you accept, the more of the risk you are accepting. Cheap car insurance is a wonderful thing to have so long as your luck holds up. But if your luck fails, the maximum deductible is going to empty that magic pocket of yours. And here’s the thing – you can be the safest driver in the world, always super careful, always following all the rules, and then you meet a dork behind the wheel of another vehicle and suddenly you’re wrapped round a tree. So look for cheap auto insurance, but always look at your cash position and ask yourself how well you would cope if the worst happened. Deductibles are good for people with a margin of financial safety.

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