CAR INSURANCE QUOTES
What are Auto Insurance Companies?
Auto insurance companies are those organizations that provide coverage for your vehicle. Most every state has laws in place that require you to maintain a minimum amount of insurance protection on your auto in the event that you are involved in a vehicle accident. Auto insurance companies fill an important role in society because they assume the financial risk associated with the potential for disaster to happen.
Auto insurance companies assume risk on the basis of the probability of loss occurring to a certain population of individuals. The grouping can be based on age, gender, driving experience and other classifications that are non-discriminatory and based on the general characteristics of a large number of like units (known as the law of "large numbers"). Understanding the role an auto insurance company play in society is essential in understanding why it is important to have protection for your vehicle.
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Types of Auto Insurance Companies
There are two general categories of auto insurance companies: companies that are owned by stock holders, which are known as stock companies and companies that are owned by the policyholders of the company, which are known as mutual companies. Although stock insurers and mutual insurers function in the same manner and are regulated the same by the states in which they do business in, the way they are organized means different things to you as the purchaser of their policies.
Stock companies generate income and profit that is subject to distribution to its shareholders, that is, individuals who hold shares of the company's stock. That individual who has a stock interest in the company does not necessarily have to have insurance protection with the company to benefit from its profitability. Mutual companies, conversely, pay dividends that are based on the percentage of overage from premiums that it collects from all of its policyholders that is more than what is needed to maintain the operation of the company. This overage, known as a policy dividend, is payable to all policyholders of the company and can be used to do things, such as reduce the overall rate that you pay as a policyholder to the company known as the premium.
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Types of Protection Provided
Both stock and mutual insurers provide policies that are similar in the type of protection for auto insurance. The policies issued by all auto insurance companies have to conform to the laws of the state in which the policy is issued. There are certain provisions in the policy that are required or mandated by the state known as mandatory provisions and other provisions that the insurance company is permitted to include for its protection known as optional provisions.
The basic provisions that you will find in most auto insurance companies policies are those for collision damage, medical expense reimbursement, disability or out of work protection, protection against loss that is created by an uninsured or underinsured driver and others.
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How Rates are Determined
Rates for your auto insurance are determined by different risk factors. Individuals with a bad driving record, reside in zip codes prone to a lot of auto thefts or accident and are not as experienced as drivers will pay, on average, more in insurance premiums than those individuals who are the opposite. Determining rates is an art and science that is undertaken by individuals within the insurance company known as actuaries. It is the job of the actuary to properly frame risk for the company and price that risk accordingly in the form of a premium.
This information should provide you with a good overview of how auto insurance companies work and assess risk associated with the rate that you pay for you protection. Understanding this information should help you when deciding on coverage and be useful in deciding which type of company is best for your auto insurance needs. For additional information, you may also see Car Insurance Quotes.