Exclusion: A provision in an insurance policy that denies coverage for certain losses, locations, people and properties.

Gap insurance: A type of insurance offered to auto lease and loan customers that owe more on a car than it’s worth. Gap insurance pays the difference between what you owe and the actual cash value of a vehicle in the event the car is stolen or destroyed.

High-risk driver: If you have accidents or tickets on your driving record, many insurance companies will classify you as a high-risk driver and charge you more for insurance.

Liability insurance: This part of an auto insurance policy covers the injuries and damage you cause to other drivers and their vehicles when you are at fault in an accident. If you are taken to court, liability coverage will apply to your legal costs. Most states require drivers to carry liability coverage. The amount of coverage varies by state.

Limits: The maximum amount of benefits your insurer will pay for a loss as designated in your insurance policy.

Medical payments coverage: This part of an auto insurance policy pays for medical expenses and lost wages to you and any passengers in your vehicle after an accident. It is also known as personal injury protection (PIP).

No-fault insurance: If you live in a state with no-fault insurance regulations, your auto insurance policy pays for your injuries no matter who caused an accident. No-fault insurance states include Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, Utah and Washington, DC..

Personal property liability: The part of an auto insurance policy that pays for damages you may cause to another’s car or property.

Personal injury protection (PIP): This part of an auto insurance policy pays for medical expenses and lost wages to you and any passengers in your vehicle after an accident. PIP is also known as medical payments coverage.

Premium: The amount charged for an insurance policy. A premium is based on the type and amount of coverage you choose. Other factors affecting your insurance premium include your age, marital status, your driving and credit records, the type of car you drive and whether you live in an urban or rural area. Premiums vary by insurance company.

Rental reimbursement: This part of a policy pays for the cost of a similar-sized rental car when your car is in a repair shop for covered damage..

Surcharge: A charge added to your auto policy premium after a traffic violation or an accident in which you were at fault.

Underinsured driver: This part of an auto insurance policy covers injuries to you caused by a driver without enough insurance to pay for your medical expenses. Some states include damages to your car in this coverage.

Uninsured driver or motorist: This part of an auto insurance policy covers injuries to you caused by a driver without insurance. Most states require drivers to carry uninsured motorist coverage. Some states include damages to your car in this coverage.

It can come as a huge surprise to many people with spotless driving records that their car insurance rates are high — or they may be denied coverage — because they’re late with the Visa card payment a couple of times a year.

What, they might ask, does my tardiness in paying Visa have to do with my car insurance?

A great debate
It’s a highly debated issue, but many insurance companies and some academics feel strongly that a mediocre or bad credit rating means you’re a high risk. Many consumer advocates, state legislators, and state insurance regulators think not. The debate may go on for quite awhile because even the true believers admit they don’t know why the two are related — they just know they are.

Nonetheless, almost all auto insurers use credit information to decide whether to issue a policy on your car. In some cases they also use it to set the premium.

Bad credit, higher rates
A consumer with bad credit is going to pay 20 to 50 percent more in auto insurance premiums than a person who has good credit. On the other hand, having sparkling credit could land you lower rates, so you should shop around if you’ve got a glowing credit report.

To factor in credit ratings, insurance companies use either the Fair, Isaacs & Co. (FICO) three-digit credit score alone; order an “insurance score” from FICO; or create their own, proprietary score using FICO credit scores or FICO insurance scores and adding in their own underwriting criteria.

The companies generally do not look at your actual credit report. Instead, it receives your credit score or your insurance score from one or more of the three major national credit repositories, Equifax, Experian and TransUnion.

Insurance score likes stability
The two types of scores — credit and insurance — are quite different. An insurance score is going to be less concerned with your propensity to take on new credit and more interested in how long you’ve been managing credit. Insurance scores focus on issues of stability.

Ironically, someone with a flawed driving record but a clean credit record could pay less for auto insurance than someone with a spotless driving record but a spotty credit record.

So as with auto financing, it’s important to know what’s in your credit file and to make sure the information is accurate.

Bad news
The bad news is that while it’s easy to get your credit score, it’s almost impossible to get your insurance score. Companies are not required by law to hand it over, and most don’t.

If you’re having credit problems, it’s best to stick with your current insurer until your credit record improves. If you must shop for a new policy, ask the insurer if it uses credit data in the decision-making process.

Auto Insurance Secret 2

Your Credit Score and Risk Is Important. Out of the 22 auto insurance companies we spoke with, 20 now consider your credit history as extremely important in determining your auto insurance rate. This number is up from 12 when we last spoke to the same auto insurance companies in May-2006. Although many factors influence your auto insurance rates, most of the auto insurance companies now consider it one of the most important factors they look at.

Here is how auto insurance companies look at this. If you have good credit, you’ll pay less. Almost all insurers — including the top five — pull your credit report. Why? Studies have shown a direct correlation between your credit score and the likelihood that you will file a claim. Insurers also know that if you pay your bills in a timely fashion and have had the same credit accounts for a long time, you’re more stable than someone who pays late and frequently opens and closes accounts. They use this information to create your “insurance risk score,” which is one factor that determines your auto-insurance rate.

The Low Cost Auto Insurance Guru tip: Your insurance-risk score is not available to you, but it may be similar to your credit score. If you have unusual credit activity, wait a month or two for it to return to normal before buying auto insurance. If your credit history is shaky, clean it up as soon as you can. If you don’t know what your credit score is or your credit risk, you can get a free credit report with your credit score by clicking here.

If you knew how this industry actually works, it would save you thousands of dollars each year on auto insurance. Want to know the secrets behind the premiums you pay? Exactly what is the “secret sauce” that is built into each premium? The answers may surprise you.

Paying a low premium on auto insurance is tough enough and getting a straight answer from any insurance agent is always “classified” ( Classified, in the military means…”They can tell you, but then they have to kill you” ) information and only available to the “privileged” few, until today! Getting annoyed at an increase in your premiums every year, even though you had no accidents or tickets? Again, the answers may surprise you and it will be revealed in this 14 part series, stay tuned.

Well, what you are about to find out in my blog, may prompt them to send a hitman after me, but I am not afraid….it is about time that their secret gets out. The economy is bad enough and everyone needs to save money wherever they can, because this economy will only get worse, before it gets better. The rule maker has refused to tell you the rules, but today and for the next 2- 3 weeks that game ends.

This post will be the first of a 14 part series, which I will “spill the beans” on the auto Insurance industry’s “secret sauce” on how they determine your rates. Each part in the series will be a full post explaining to you one closely guarded secret after the next. Therefore, I urge you to bookmark this and all 14 posts in this series to your favorite social bookmarking site, and tweet each post (using the convenient “tweet this”link below) to your twitter account so that your followers may read this too. Finally, for those who prefer email, you will find an easy “share this post” link at the bottom of each post, that will allow you to send this blog address link to all your friends and family. We must get the word out, so we can beat these selfish insurance companies at their own games. Oh, almost forgot, please comment on this post and let me know what you think.

Auto Insurance Secret 1

Stay away from cars with cool gadgets and high priced electronics. When you buy a new car, stay away from all the pricey high tech options, such as GPS, Xenon Headlights, adaptive cruise control, parking sensors, etc. I know that when you buy a higher priced luxury car, like a Lexus, Mercedes or Cadillac, these are standard, but more and more of these “luxury gadgets” are becoming optional equipment on lower priced mini-vans, suvs and economy cars, as well. Stay away from them!

Much of today’s coolest car technology is expensive upfront and even more expensive to fix. Even the most mundane repair or replacement can cost a small fortune. You easily could shell out $1,000 to replace a key or a side mirror, $2,000 to fix a headlight and thousands more to mend more intricate systems such as adaptive cruise control or a rear-view camera.

“We’re just deluged with comfort and convenience items” on new cars, said Jack Nerad, executive editorial director for vehicle-valuation company Kelley Blue Book. “But a lot of the stuff is so complicated (that repairs) can be difficult and expensive.”

Just take a look at this price list compiled by the Highway Loss Data Institute to replace some of the “cool” parts on certain luxury autos. Remember, the more expensive it is to fix these gadgets, the more expensive insurance premium you will be charged…its that simple…its not rocket science!”

2005 Mercedes C Class

• Adaptive cruise-control system, which maintains a set distance from the car in front: $3,742
• Xenon headlight with washer: $1,659
• Parking sensor $345

2005 Lexus RX330

• Adaptive headlight with washer: $1,627 per light
• Backup camera: $4,217
• Adaptive cruise control: $1,318

2005 BMW 5 Series

• Adaptive headlight with washer: $2,035
• Parking sensor: $372
• Adaptive cruise sensor: $2,222

2004 Cadillac Escalade

• Ultrasonic rear-parking assist: $934
• Xenon headlight: $765
• Heated side mirror with turn indicator: $997

Remember, this is just cost of the parts. Labor’s extra. And the list doesn’t touch some of the most popular technology, like global-positioning systems, headset-mounted DVD players and built-in, hands-free calling systems.

Please keep coming back to my blog for PART 2 of this series.