insurance policies are made up of a variety of coverages, such as collision, bodily injury, and more, all of which I’ll go over in the next chapter.
So, whodecideswhat your premiums will cost? An underwriter factors in all the variables, from your age toyour car’s age toyour locationandmore. (Again, all will be explained in detail later.) He or she will look at the risk , the chance that there will be a loss of some kind, and figure out the rate , a termthat is often used interchangeably with “premium” but is actually
MONEY-SAVING TIP: AUTOMATE IT
Some companies offer a discount if you set up an electronic funds transfer (EFT). This means your payment
gets automatically taken from your bank account or credit card. You may also qualify for a discount if you pay the whole premium upfront.
different. The rate is what it costs the insurance company per exposure . The exposure unit is the item— in this case, your car — that is being exposed to loss. It factors in howmuch it will cost if your car gets destroyed. Your premium is your rate multiplied by the number of exposure units. I know that might be a little confusing, so let’s use some easy math to explain this: Say each exposure unit is $1000 for collision coverage for a rate of $10 a year. You have a car worth $10,000. First, the underwriter will figure out the total number of exposure units by dividing 10,000 by 1000, which equals 10. He or she multiplies that 10 (exposure units) by $10 (rate per unit) and gets $100, the amount you would pay for your customized collision coverage premium.
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