Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Reviewed by Jeffrey Johnson
Insurance Lawyer

UPDATED: Jul 14, 2021

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In a nutshell...

  • Car insurance premiums are paid to start and maintain your insurance policy
  • Your policy starts with the payment of your first premium and issuance of the correct paperwork
  • Get an online quote and shop and compare to find the best deal

Buying insurance is something that you must do to make sure your financial property (your vehicle) is covered and to avoid liability costs out of your pocket.

Insurance was created for the purpose of covering you so that you would not be vulnerable to lawsuits from others that you injure due to your negligence.

Compare car insurance quotes to find the best coverage for the best rate.

Premiums are Not Deposit Payments

People understand the importance of having insurance, but they often do not understand what payments are taken and why.

For example, some think that the first payment on insurance is a “deposit” such as money that you pay when you rent a house or pay on an item that you purchase in the store.

Car insurance, like any insurance, requires that you make the first premium payment before you have coverage in force.

The first installment you make to your agent or the insurance company is not a deposit, as many people falsely believe.

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It’s Not a Deposit

Insurance agents themselves may sometimes call the first premium a “deposit,” and they may confuse people who are paying their first premium by using incorrect terminology.

Your insurance will not be in force until you pay the first premium, so be ready to pay this amount to start your policy.

Once you have been issued the correct paperwork and you have paid your first premium payment, your policy will be in force as of the date that you had the premium counted toward your account.

What is an insurance premium?

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A premium is a payment made to your insurance company that they use to pay for your insurance coverage.

As long as you make your premium payment on time each month or quarter, as agreed, you will not have to worry about being covered.

If something happens and you have an accident, your insurance coverage will be good, and they will pay your claims.

It might interest you to know that your insurance premiums go to the following places:

  • payment of your policy
  • sales commission of the insurance agent or representative that sold you the policy
  • other expenses that are involved in your policy

Since you do not pay in any extra money when you purchase an insurance policy, you do not get your deposit back if you cancel your policy.

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The Exception to the Rule

Though it is not considered a “deposit,” if you cancel your policy before you have gone through an entire month of coverage, you will receive back any premium that you paid that you were not credited for during that period.

In other words, insurance will cover you for every day that you paid.

When you cancel before the 30 days is up, you are owed the amount that you paid into the policy, and you will get this upon cancellation of your policy.

Other situations which might involve you receiving premiums back is if your insurance did not cover you for a time that you thought it did but you continued to pay premiums.

Talk to your insurance representative to see how this situation works with your policy.

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What is a deductible?

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Another often misunderstood term is “deductible.” A deductible is an amount that you must pay into a policy before your policy pays out.

Deductibles in car insurance are related to collision insurance. Collision insurance is coverage that you need to pay for damages that you sustain to your vehicle no matter who is at fault.

If you are in a “fault state,” the person that caused the accident will pay through their insurance. If you are in a “no-fault” state, everyone pays for their own damage through their private insurance, regardless of who is at fault.

If you have a deductible that is $500, you will have to pay $500 for the repairs for an auto collision before your insurance pays for the damage.

When you choose the amount of your deductible, think about what you can afford to pay out of your pocket and choose that as the amount of your deductible.

If you choose a deductible that is too high, you will feel as though you do not have insurance because of the large amount you will have to pay yourself.

How to Choose Car Insurance

There are some considerations that you will want to take into account when choosing your car insurance.

  • Reputation of the company  One thing you should consider when shopping for car insurance is the reputation of the insurance company that you are considering. You need to know that they have an adequate reserve and financial stability to pay their claims and that they have a good reputation for paying claims.
  • Premium costs  Premium costs are a factor in deciding what insurance company you should use but it should not be the only factor. Compare the costs of the premiums of your current policy with at least three or four others to get an idea of your options and costs.
  • Your risk level  Think about the level of risk that you have when you drive. Consider your mileage, how many people you take with you in your car, and other factors. The number of people that you take in your car with you will influence the amount of liability you may need.
  • Driving record and other factors  Is your driving record good? If so, you may be eligible for discounts due to safe driving records. If your driving record is not as good, you will want to see which company will give you the best deal. For those with DUIs or bad driving records, check out high-risk insurance.

Make sure that you compare at least three or four policies and companies when shopping around for car insurance. Look for discounts that you may qualify for and ask questions when you get a free online quote.

Get your free online quotes right now. You can compare them side-by-side and then decide which company is right for you.