How Does Auto Insurance Work

Auto Insurance 101 by Jake Meola

There's a lot of things that go into your Auto Insurance. A lot of people think they know a lot about it but unfortunately, it’s always not the case. 

Being an independent agent Jake is able to see the back ends of various different carriers to see who uses what and what actually affects the rate in different areas. 

Every carrier is different that's why it is important to check in various locations because something that might be penalizing you in one location might actually be a benefit for you in another.

What affects your rate?

Age

If you're trying to get insurance for somebody who just got their license, you'll notice that it's a nightmare. The insurance rate will skyrocket because they know that a young driver is new to the road and they don't know the rules necessarily yet.


Driving Record

A driving record is your motor vehicle report. They will find all the tickets you have ever gotten. If you have ever been convicted or not, that doesn't really matter. 

A lot of people think that if they go to court, plead down, and remove the points on their license, the ticket is gone. However, that ticket will still show up on your insurance. They do a five-year pull for your motor vehicle report so you gotta think back for the last five years of any tickets that you've had.

Your Prior Claims 

If you had any claims on your auto insurance in the past, it will affect your rate. There are different types of claims so if it was just a windshield claim, towing, or labor you might be penalized a little bit less than if it was something like a full-on collision.

However, your comprehensive coverage claims under that don't weigh as much because those are considered things that aren't necessarily your fault. If a tree branch falls in the car, or you hit a deer, in case of theft, or fire, they don't necessarily affect your rate.

Also, reviewing your claims is another five-year window that they're looking at.

Gender

Your gender has an effect on your rate. Usually, men are worse drivers as far as they are more reckless (although any man we talk to will say that women are worse drivers).

Zip Code

Your zip code has an effect on your auto insurance rate. The environment that you're in is a factor. For example, if you're in Toms River, your insurance rate based on your zip code is gonna be a lot different than somebody who is in Newark or Elizabeth. That's because they're also factoring in things like theft, fire, people, hit and run rates, etc. If it's a more populated area, they know that there are more people around to do damage to your vehicle and therefore it's more likely that you'll get in an accident.

Marital Status 

You can get discounts on your policy by being married. Sometimes people will choose to have separate policies when they're married because they don't like the record of their spouse or they like to keep their money separate. However, sometimes you can get a discount when having both of you on policy and when your marital status is married. 

Education

You can get a discount for having a higher education. If you have a master's degree or a doctorate degree, you can actually get a discount on your insurance.

The assumption being, if you have a higher education you'll be smarter on the road. In their theory, the smarter you are, the better you drive.

Credit Score

Your credit score is a factor in everything in life at least in the United States. Therefore, if you have a stellar credit score but not necessarily a stellar driving record you can still sometimes get a pretty good deal.

However, this also means that if you have a great driving record and not necessarily a great credit score you might see some increases in your premium.

Occupation 

Sometimes various carriers, (not all) will ask what your occupation is and sometimes it will change the rate based on what you select.

What are your options?

“I have my liability coverage so if I hurt somebody or if I damage something, I'm covered there. They have coverage for their own car.” 

We often hear the above when people talk about their auto coverage.

However, people don't really think too much about what their options are. Mostly because when they're calling to get their insurance, they are just calling and asking for “Hey, this is the coverage I need, can you get me the cheapest price?” 

They're not really thinking about what their options are. Knowing what your options are is really helpful to get the best thing that you want.

Usage-based Programs

These are programs that help by tracking what your driving habits are and this can give you a discount based on that usage. Each program is different and Jake advocate for some over others ONLY because some programs can penalize you based on your driving. 

Know what your qualifications and what your driving habits are so that you know whether or not it's a good idea for you to enroll in this program.

Roadside Assistance

Usually, if you have AAA you don't need to have this, or if it comes with your existing car policy or if you have a lease. But essentially roadside assistance helps you if you've got a flat tire, if your car breaks down, or if you need a tow among other things.

Rental Reimbursement

A lot of people opt not to have this because they don't realize it's an option but this would be if your car was in the shop for a claim. If it was due to a claim they will reimburse you for renting a vehicle on a daily basis. You can have anything from $25 a day all the way up to $100 a day as far as what you think would cost you for the type of rental you would want to use.

It’s nice to have this if you don't have a second vehicle in the household. This way, you're not stuck in using Lyfts or Ubers every day until your car is fixed. 

New Car Replacement

This is typically for cars that are one or two years old, fresh off the manufacturer. They will give you the option to have new car replacements if you totaled the vehicle within those first two years. They will replace the full value to buy the new car rather than the depreciated amount which as you know can be quite significant. Once you drive off the lot, the value plummets so having that option available is really nice.

Better Car Replacement

This is if you don't necessarily have a new car, not the first two years but maybe within the last 10 years. What they'll do is, if you totaled the car they will replace or fund the car for two model years newer or 10,000 miles fewer on the vehicle so you get a better car than what you had started with.

OEM Parts 

If you have a nice high-end vehicle something like a BMW, a Tesla, or anything that has its own parts, you can opt to have OEM parts only. This way, when you have a claim and they have to replace something, they will only use the original manufacturer's parts for that. This is very important because certain cars won't work well with their fabricated replacement parts that are aftermarket.

Decreasing Deductible 

This is essential if you are a good driver and if you don't have accidents on your record. You can opt for the decreasing deductible which actually lowers your collision deductible by a hundred dollars every time you renew the policy.

If you chose to have a 500-dollar deductible and you choose the decreasing deductible when you bind the policy, it will be a deductible of $400. Each year when you renew, and you don't have an accident they will give you another $100 towards that deductible. It means that five years down the line, if you don't have any accidents you will be at a zero dollar deductible.

And if you did get in an accident you wouldn't have to worry about any out-of-pocket costs when dealing with the claim. 

Accident Forgiveness 

For good drivers, if you have not had an accident in five years or more, you're eligible for accident forgiveness. Essentially, that means that if you were to get in an accident, the first one would be forgiven by the insurance company because they know that you have had an amazing history and you did opt to pay a little extra for the accident forgiveness. 

This can be very important because if you have had such a clean record and something happens, you will be stuck with that history of an accident on your policy. This can really affect your rates moving forward, and with accident forgiveness it will get wiped off from your slate and you are back to your clean record. 

Note: There is another five-year window before you are eligible for accident forgiveness again.

Payment Plan

A lot of people will opt to do a monthly option for their auto policy depending on whether or not they have a six-month or a 12-month policy. You can choose things like a six-month term at a time or an annual term at a time. You can get discounts for the way that you pay so if you pay in larger chunks at a time you will get a discount on the premium itself. 

Sometimes, it can be a substantial couple of hundred dollars over the year can. Therefore, if you have the money laying around or if you have a credit card that you want to earn miles or points on Jake recommends paying everything in full. 

You will save money on the premium, you will earn those points and then you will basically be done for the year. 

What are the benefits of having an independent agent? 

Customization Without Compromising the Price 

Essentially, Jake can find out what you want to have in a policy, customize it on each quote that he comes up with, and find the carrier that has the best option for you.

Expert Advice 

Jake has worked with so many different carriers (over 13) in his insurance career. He knows what factors into each of those carriers, what to avoid, and what things you can take advantage of. 

Ability To Shop Around Without the Hassle

Many of you have shopped around before and end up having to call various different carriers, say the same things over and over again, and go through the same spiel. A lot of times you end up with a quote that is different from what you had started out with because they didn't run the reports or they didn't give you an accurate number. Then, all of a sudden they run the reports and saw you had an accident or ticket in the past and now your rate is twice as much. This is a common scenario.

With Jake, you are able to basically get a bird's eye view of all of your options together and a side-by-side comparison. You are able to choose based on the things that are important to you and what makes the most sense without doing any extra work. Jake will do all the work for you. 

You Get a Representative and NOT a 1-800 Number

Having somebody to be able to reach out and talk to is important so that you are able to get back with the same person and not have to repeat yourself. You have somebody who understands the situation from beginning to end. With an independent agent you have someone who is available to answer all the questions for you without that hassle.

No Brand Loyalty

This means not being wedded to any one particular company. Jake knows the benefits and the downfalls of all of them and he is objective in a way that he describes things and lets you know what is best for you, not just best for himself as an agent. 

Ability To Switch Carriers and Keep the Same Agent

You have the ability to switch your carriers and still keep your agents as years go by. If you find that your rate has gone up or when you had an accident and now you need to shop around again, you're able to still shop around and have the same agent. You can have the benefits of knowing who your care representative is but also not be stuck with the same carrier for your lifetime.

Presentation by Jake Meola, also known as Jake the Insurance Guy.

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