The Basics

Let's take a look at the basics of auto insurance. In exchange for an auto insurance policy that provides a specific amount of coverage, you pay an insurance company a premium.

How much you pay in premiums is based on a combination of factors, including:

*How much coverage you have

*What kind of coverage you have

*How large a deductible you pay

*Your driving record

*Theft and safety statistics of your auto

*Accident statistics in the area where you live

*How much you drive

*Other drivers on your policy.

Auto insurers generally bill you every six months or so in order to have premiums reflect their most recent claims expenses. You can usually arrange with your insurer to make extended payments, such as every month, but breaking up your premiums into smaller payments is likely to add to the total cost of the premium.

States often require a minimum amount of insurance coverage for certain categories of auto insurance. For example, most states require some amount of liability insurance. Some states require uninsured and underinsured motorist insurance, while others require medical payments insurance.

You can often lower your premiums by limiting how much coverage you obtain or eliminating unnecessary coverage. We look at some of the major categories of auto insurance coverage later in this educator.

Insurance is the business of paying for the transfer of risk. Auto insurers will gladly cut you a break on your premiums if you share in the risk. One way to do this is to limit the maximum amount of potential liability the insurer will face.

Another way to share in the risk: Increase your deductible. Paying a higher deductible --- $500 instead of $250, for example -- means you pay more upfront when you file a claim. If you insist on a small deductible, expect to pay a larger premium.

Other ways to lower your premiums include buying a vehicle with a reputation for safety and low theft. You can also drive safely or even drive less. The fewer your opportunities for accidents, the less risky you are from an insurer's point of view.

Auto insurance is regulated by state governments. Each state has its own insurance commission, which regulates rates and handles complaints. An insurer has to have a state license in order to sell insurance in that state. The main umbrella organization of state insurance commissions is the National Association of Insurance Commissioners (NAIC).