The best car safety device is a rear-view mirror with a cop in it.

~Dudley Moore (1935-2002)

Whether you own a unique sports car that you tuck safely in the garage every night or you drive a worn out hand-me-down, the laws in your area probably require you to have car insurance. You'll likely need a certain amount of mandatory coverage with the rest tailor-made to suit your needs.

How does car insurance work?

Generally, the payments or premiums we pay cover the losses of a few. The premiums you pay go into a large pool. Since there are more people contributing to the pool then there are using it, car insurance companies always have enough to cover your claims. In fact, most companies have their own insurance protection in the event that there might be a large surge of claims to cover.

Unlike other forms of insurance, your premiums don't build up over the years. Car insurance runs for a year at a time. One reason for this is so that the providers can keep track of annual premium payout needs. Insuring companies collect a lot of data about drivers and vehicles.

What does car insurance cover?

Property coverage: Although not usually required by law, it's wise to have property coverage. Car insurance property coverage can pay for damage from accidents, theft and fire.

Liability coverage: This area of your policy covers the cost of injuries to others or damage to another vehicle.

Medical coverage: A serious car accident can mean long-term rehabilitation. You might want your car insurance policy to include coverage for lost wages and funeral expenses.

It's important to read over your car insurance contract to know what losses you would be entitled to claim for. Have your representative explain things to you and don't be afraid to ask questions.

Car insurance costs

What sort of things will affect the cost of your coverage? Location, for one. If you live in an area that is mountainous or has severe weather conditions throughout the year, your car insurance may cost you more. Just ask any young driver- they know that driving history plays a large role in determining costs. The good news is that if you go through the year without making any accident claims you could qualify to receive safe driving discounts the following year.

There are some practical steps you can take to lower your premium costs. Most car insurance companies will reward drivers who use anti-theft devices. Having an alarm or immobilizer installed could help. Another step you could take involves claim deductibles. The deductible amount is the amount the driver is responsible for on a claim. If you are willing to increase this amount, your payments will be lower.

Some companies offer lower rates for new customers. If you are in the habit of always using the same car insurance broker, why not look into signing on with a competitor? There is always a bit of flexibility in premium rates. Just remember, if you are ever in an accident you'll be glad to have the coverage.

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