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. So, who decides what your premiums will cost? An underwriter factors in all the variables, from your age to your car’s age to your location and more. (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 term which is often used interchangeably with “premium” but is actually 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 how much 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. Make sense? I hope so. One thing I want to make clear is that this is the place where your premiums can change. For example, if you cause an accident, your rate per unit will possibly go up. If you go a long time without any accidents or tickets, your rate may go down. Much of this depends on your insurance company.
Terms to Know About Claims
Next up, I want to go over the terminology involved with claims. A claim is the official request you give to the insurance company to ask that you be reimbursed for a loss. A claims adjuster (also
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