The Ultimate Guide to Car Insurance

Car insurance is difficult to understand. Almost every driver in the United States is required by law to purchase auto insurance, but you may be perplexed as to how it works. What exactly does it cover? What is the price? Why is it so expensive? Let's take a closer look at how it works and how it can help you save time and money.

Types of Car Insurance Coverage

One of the reasons car insurance can appear complicated is that it can include a variety of coverage options. Most states have minimum coverage requirements, and you can add more coverage to help cover costs in more situations. The following are the various types of coverage that can be found in auto insurance policies.

Liability

In most states, this is required coverage. Liability coverage in your policy may be divided into two types: bodily injury liability and property damage liability. If you are found to be at fault in an accident, liability insurance can help cover the other party's expenses.

Your insurance will help cover the other party's medical bills if you have bodily injury liability coverage. Your insurance helps to cover damage to the other party's vehicle or structures that your vehicle hits with property damage liability.

Liability coverage is typically written as a three-number combination on your declaration page. For example, you could have a coverage ratio of 25/50/10. The first number (25) indicates that a single person injured in an accident could receive up to $25,000 in compensation. The second number (50) indicates that up to $50,000 could be paid out in the event of a multi-person accident. The third digit (10) refers to property damage, which means that up to $10,000 in coverage is provided for damage done to someone else's property.

Personal Injury Protection and Medical Payments

Personal injury protection (PIP) coverage is required in some states. In some states, you may be able to choose between PIP and medical payment coverage. Personal injury protection offers a broader range of benefits than medical payment coverage. It protects you and your passengers in the event of an accident. PIP covers medical costs, lost wages, and non-medical costs. 

Medical payment coverage pays for your and your passengers' medical bills in the event of a car accident. It makes no difference who is at fault. It should also not be used in place of health insurance because it only covers medical expenses for injuries sustained in an auto accident.

Uninsured/Underinsured Motorist

Uninsured/underinsured motorist coverage is required in the majority of states. This helps cover your medical expenses and vehicle damage if the other party is at fault in an accident but does not have insurance or has insufficient insurance. For example, if your car is damaged in a hit-and-run accident and the other party isn't found, uninsured motorist coverage may cover the repairs.

Collision

Collision coverage assists in the repair of your vehicle if you are at fault in an accident. A collision occurs when a moving vehicle collides with an object. It could be a mailbox, a guardrail, another vehicle, or anything else inanimate. Collision insurance may also protect you if you hit a pothole or roll your car.

Comprehensive

As long as the damage isn't the result of a collision, comprehensive coverage will pay for it. Most policies cover hail, floods, tornadoes, animal strikes, fire, theft, vandalism, and damage from falling objects.

Comprehensive coverage may also cover windshield damage. Some insurance companies also provide separate full glass coverage, which allows you to replace your windshield without having to pay your full comprehensive deductible.

Roadside Assistance

This is a type of coverage that is optional but usually inexpensive. If your car breaks down, you can have it towed to a nearby service center (subject to the terms of your policy). Roadside assistance may also include assistance if you are locked out of your car, require a jump, or have run out of gas.

Rental Reimbursement

Many drivers who do not have a backup vehicle value having access to a rental car after a claim. If you need to rent a vehicle while your current one is being repaired, rental reimbursement will cover a portion of your rental costs. This coverage may be subject to daily limits, and your insurer may limit the number of days you can use it.

If your vehicle was involved in a covered accident, some insurance companies will automatically include a small amount of coverage. Otherwise, you'll have to add the coverage to your existing policy.

Gap Insurance

Do you owe more than the value of your vehicle? In the event of a total loss claim, gap insurance will cover the difference between the value of your vehicle and what you owe. This is frequently available from your dealer when purchasing a new vehicle, as well as from your lender or insurance company. Before deciding where to buy gap insurance, you may want to price out all of your options.

Elements That Impact Auto Insurance Costs

The cost of auto insurance varies from one insurance company to the next. They also differ from person to person, even if you purchase the same insurance from the same company. These elements have an impact on your auto insurance costs.

Your Policy Choices

You do have some say over your insurance costs (also known as policy premiums). You can change your policy limits, types of coverage, and deductibles as long as you meet your state's minimum requirements.

  • Policy limits: The more coverage you purchase, the more expensive it will be. While it may be tempting to stick with the state's minimum coverage, if it's affordable, consider getting more. State liability limits are typically low, and the actual costs of an accident can be high. Medical bills, for example, can quickly become prohibitively expensive.
  • Types of coverage: Comprehensive and collision coverage are often optional, but if you've financed or leased a car, your lender may require you to have those types of coverage. If this coverage is optional for you, request quotes with and without it when shopping for a policy. Keep in mind that not having this coverage means you could face higher out-of-pocket expenses if something happens to your vehicle.
  • Deductibles: A deductible is the amount of money you pay out of pocket after filing a claim before receiving insurance coverage. A higher deductible translates into a lower insurance premium. Your policy's deductibles may differ depending on the type of coverage you have.

Rating Factors

Statistical data is also used by insurance companies to determine which drivers are more likely to be high risk. They charge higher premiums to potentially higher-risk drivers. Here are some of the most common rating factors.

  • Your age: You're probably aware that age is a factor. New drivers pay the highest rates, which gradually decrease as you gain experience. Later in life, rates begin to rise again. A 75-year-old driver, for example, may be charged rates comparable to a newly licensed teenager. 
  • Your vehicle: If you own a valuable vehicle, your insurance costs will be higher. If you have a sports car instead of a minivan, your costs will be higher as well.
  • Your driving record: If you have a history of speeding tickets or other moving violations, you will pay more for insurance.
  • Your claims history: Insurance companies also consider whether you've filed previous car insurance claims and the nature of those claims. If you file claims frequently, you will almost certainly be charged a higher rate.
  • Your location: Your car insurance rate may be affected by where you live. Insurance companies monitor claims, and if you live in a high-risk area, your car insurance payment may reflect this.
  • Your credit score: In most states, insurance companies can use credit scores to determine your car insurance premiums. Generally, the higher your credit score, the lower your auto insurance rate.

Discounts

Most insurance companies provide a number of discounts. These could include multiple vehicle and policy discounts. Insurance companies may also give you a discount if you don't file a claim. To maximize discounts, try to keep all of your insurance policies with the same insurance company.

How To Shop for Car Insurance

Obtaining multiple quotes for car insurance is the first step. Begin by obtaining quotes from multiple companies for the same type of coverage. Once you've decided on an insurance provider, you can work with them to tailor your coverage to your specific needs and budget.

You should also review your coverage on a regular basis to ensure that it is still meeting your needs. A yearly review is a good idea. If your insurance provider does not renew your policy, you may need to look for new coverage. If you're having trouble finding insurance, you can get help from your state's insurance department.