Auto insurance is an agreement between an insurance company and the insured, also known as the policyholder. By purchasing a policy, the insured transfers specified risks to the insurer through a binding agreement.
Risk is the probability of financial loss such as damage to property, bodily injury, liabilities, loss of income, loss of use, etc. By entering the insuring agreement, the insurer agrees to indemnify the policyholder or pay out liabilities in the event of specified losses as a result of certain perils (causes of loss) as described in the policy, in exchange for premium.
An insuring agreement specifies limits of coverage and even indicates included and excluded perils, such as terrorist acts, etc. Each policy specifies definitions and details of what exactly is covered and what is not covered. An auto insurance policy protects the insured's from financial losses as a result of traffic accidents, vehicle damages and theft. The personal automobile policy is designed to help the policyholder avoid financial losses when an unexpected loss occurs.
Auto insurance companies earn premium from policyholders by being "at risk" for insured's losses. Insurers make a profit from those who do not have claims and also use premiums to invest and make additional revenue.
A company bases premiums on the amount of risk it takes on. For example, if the insurer is on the hook for a high amount of loss, they will charge more premium. Additionally, if an insured has the characteristics of a high risk driver, such as a history of moving violations and/or accidents, carriers may increase rates. Policy holders who are claims-free may be offered a rate reduction since they indicate a low probability of loss. Knowing what factors determine car insurance rates will explain how carriers can adjust premiums based on their profits and losses.
Rates are not the same across all different companies since each carrier has it's own experience of claims. It is always suggested to compare auto insurance from multiple companies in order to find out who will offer the lowest rates for the coverage desired. Even those with a bad driving record may end up finding low rates by shopping around.
OnlineAutoInsurance.com helps visitors easily research auto insurance online from a variety of quality companies with the ability of purchasing a policy instantly.
by onlineautoinsurance.com
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Thursday, September 25, 2008
How Does Auto Insurance Work
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