What Is Standard Auto Insurance?
Standard auto insurance refers to the most basic auto insurance offered to drivers who fall into an average risk profile. The standard coverage will usually be the least expensive type of auto insurance available to the driver. Drivers with a clean driving record and a minimal number of claims filed in their past will usually qualify for standard auto insurance.
- Actuarial information gathered from the driving records of those with similar characteristics to the person seeking coverage is used to set the premium.
- Actuarial information the insurer considers when setting the premium includes gender, age, marital status, driving record, accident history, vehicle type, car usage, credit history and location.
- The actuarial information helps the company estimate the likelihood of the driver getting into an accident, filing a claim and costing the insurer money through a higher-than-average claim rate.
The Basics of Standard Auto Insurance
Standard auto insurance is the basic or lowest level of coverage available from an insurance provider. The regulations in most states require a driver to carry liability insurance and will determine the exact dollar value of coverage needed. Liability insurance will cover bodily injury and property damage claims resulting from an accident that is primarily the fault of the insured individual. This insurance covers the expenses of only the other driver or property owner who received damage due to the error of the insured driver. Auto liability insurance will not cover the policyholder driver.
In addition to standard auto insurance, other types of insurance, such as comprehensive and collision, may be available at an additional charge to the standard policy. These coverages offer extra protection for the policyholder. Collision insurance reimburses the insured for damage sustained to their personal automobile due to the fault of the insured driver. Many drivers have this type of insurance as an extension of a standard policy. Comprehensive coverage is for damage to a consumer’s car from causes other than a collision, such as damage from a tornado, vandalism, collapsing garage, or dents caused by a run-in with a deer.
Also, it is essential to understand that most collision and comprehensive insurance policies have separate deductibles. As with all insurance, a deductible is an amount that the consumer must pay out-of-pocket before the insurance company pays.
Qualifying for Standard Auto Insurance
Standard auto insurance takes into account a driver’s characteristics. Actuarial information compiled from similar drivers’ records is the basis for the premium charged.
To qualify for a standard automobile insurance policy, a driver must meet specific basic requirements. These qualifying requirements often include a clean driving record and a history of limited or no filed claims. Further, the type of vehicle a driver owns can also affect the availability of access to a standard insurance policy. An auto insurance company will rate drivers on different categories of risk, including age, gender and credit history.
How Are Auto Insurance Premiums Determined?
The ability to accurately estimate the risk in underwriting a new policy is crucial for an insurer as it can make or break the company's profit. If the company prices the insurance policy correctly, understanding the claim risk, it may be profitable, as the premiums will exceed the benefits paid. Conversely, if the insurer does not adequately recognize the risk associated with underwriting a particular policy, it can potentially lose money. In this case, the insurance company may wind up paying out more benefits than it receives in premiums.
Insurance companies pay close attention to individuals and businesses when determining whether to underwrite a new policy. In the case of auto insurance, the insurer will consider the driver’s age, gender, marital status, driving record, accident history, vehicle type, car usage, credit history and location. They will compare these driver characteristics with actuarial information. The actuarial information allows the company to determine the likelihood of the driver getting into an accident, filing a claim and costing the insurer money through higher-than-average claim rates. The insurance company uses this information to set the premium charge for coverage. However, all factors do not receive equal weighting. The driving record, age and gender carry more weight than do marital status or credit score.
Real World Example
The type of vehicle you own plays a significant role in how expensive your insurance premiums are. Many of the most expensive cars to insure are large or midsize luxury vehicles. Conversely, many of the cheapest vehicles to protect are small to midsize SUVs.
According to a recent USA Today and 24/7 Wall Street article, which looked at research from the non-profit Insurance Institute for Highway Safety, the most expensive car to write insurance for is a Tesla Model S four-door electric 4WD.
The annual average insurance paid on the Tesla is $1,789.48, and the average yearly collision insurance is $1310.40. The Tesla, classified as a "large luxury" vehicle, retails at $74,500.
The second most expensive vehicle to insure is the Mercedes-Benz S class four-door LWB 2WD. The annual average insurance paid is $1,540.63, and the annual collision insurance is $803.40. The Mercedes-Benz also classifies as a "large luxury" vehicle and retails for $89,900.
On the less expensive side, USA Today and 24/7 Wall Street's research showed that the cheapest car to insure is the Subaru Outback 4WD with Eyesight. The annual average insurance paid is $539.32 and the yearly collision insurance came in at $222.30. The Subaru Outback is classified as a "midsize station wagon/minivan" and retails for $25,895.
The second cheapest car to insure is an Acura RDX four-door 2WD. The annual average insurance paid is $590.92 and the yearly collision insurance is $249.60. The Acura RDX is classified as a "midsize luxury SUV" and retails for $36,000.