Car Insurance 101
Discovering the Coverage That’s Best for You and Your Family
Say you have just bought your first car, or have leased a new or used car; you are required by law to have car insurance. Car insurance can be expensive, and sometimes it may seem like the government makes it compulsory just to make the rich insurance companies richer. But this isn’t the case. According to a recent report by the NHTSA, in the year 2015, there were a total of 6,264,000 car crashes in the U.S. alone. These auto accidents resulted in over 35,000 fatalities and nearly 2,500,000 injuries. Additionally, out of the total number of crashes, over 4,500,000 accidents resulted in property damage.
These statistics represent the driving experience of over 225 million licensed drivers in the United States. This means that there’s a 3.6 percent likelihood that you might get into an accident in any given year. This percentage may seem low, but that does not mean that you should take any risks. Car accidents can happen to anyone, even the best of drivers.
If you do get into an accident, a car insurance cover can protect you and your loved ones from huge expenses. What’s more, the right car insurance can even protect passengers and drivers of the other car(s). It can also supplement your health insurance and help pay for medical expenses that typical health insurance wouldn’t cover–for instance, medical treatment and dental work resulting from an auto accident.
What Type of Insurance You Should Get?
Drivers in 48 states plus the District of Columbia are required by law to maintain a minimum level of auto insurance coverage. Each state has its own set minimum coverage limit, which is the amount an insurer can pay towards a claim. Otherwise, you may end up having to pay out of pocket. For instance, if you cause an auto accident that results in injuries to another diver and the medical bills exceed the limit set by your insurer, you will have to pay out of pocket.
Depending on your state, you may have to purchase additional insurance coverage–for instance, personal injury protection and motorist coverage. Beyond the set minimum, your auto insurer will also offer different coverage. To determine the best type of coverage for your needs, consider the following:
In case you cause an accident, this type of cover will cover both property damage liability and bodily injury liability. Your insurer will pay for vehicle repairs and medical bills of the other party. However, it won’t cover you or passengers on board your car.
Underinsured and uninsured motorist
Just because you are law abiding and always ensure that you purchase your auto insurance doesn’t mean that all drivers have auto insurance. There will always be people who drive uninsured despite the law. Other motorists won’t have adequate auto insurance coverage. In case of an auto accident caused by such a driver, this type of auto insurance coverage will pay for the car repairs and for your medical bills. This type of cover is compulsory in about half the states.
This cover will pay for the repair of your vehicle after an accident, including the fixing and replacement of parts. This cover will still pay for the repair of your car after damage caused by an accident with an object like a house or tree, or where an object wasn’t involved, for instance, if your car flips. While most states don’t require this type of cover, it may be required by your financier if you have a lease or loan. Keep in mind that this type of cover cannot be purchased without a comprehensive cover.
This type of cover will protect you against some types of damage that aren’t caused by an accident, for instance, falling objects, theft, or natural disasters. Just like collision coverage, this type of coverage isn’t compulsory in most states, but your lessor or lender may require you to purchase it. Additionally, this type of coverage is often purchased along with a collision type of cover.
Also referred to as MedPay, this cover is similar to PIP (Personal Injury Protection), but it is more limited. It pays for all medical expenses that result from the accident. Although this type of cover is optional, it supplements the health insurance cover of victims who have one. It is also a great substitute for those who don’t have a health insurance cover. This type of cover also pays deductibles and copays of other insurance covers, including PIP and health insurance policies.
Personal Injury Protection (PIP)
This type of cover is also commonly referred to as no-fault insurance. It will cover your medical expenses in case of an accident. Additionally, it also covers other drivers that have been listed on your policy. This includes passengers and members of your household. Apart from paying for your medical bills, it can also compensate you for child care, lost income, and even a funeral in case of a fatal accident. This cover is only required in 15 states and optional in others. However, it is not available everywhere.
Your car starts to depreciate immediately you drive it off after purchase. After a catastrophic accident, your insurer will only pay you the actual value of your car. The amount could be less than your lease or loan. Your guaranteed auto protection or gap policy will pay the difference (gap) between the value of your car and what your insurer pays for your car.
Find out how much insurance you need.
According to the Insurance Information Institute, state laws require drivers to carry minimum insurance coverage, though these requirements seem to often fall short of peoples actual needs.
Claims could end up costing you hundreds of thousands of dollars.
In case you’re found liable for causing the other party’s damage, without adequate insurance you could be facing hefty costs.
Bodily injuries can be expensive. For instance, the average cost of an ambulance ride is around $1,000, and a checkup at the ER can cost upwards of $3,000. In case the accident was fatal and claimed lives, you could be looking at millions of dollars.
When it comes to property damage, a wrecked car can cost you a minimum of $25,000. Even the repair of small dents could cost you thousands of dollars. Without auto insurance coverage, you would have to pay for all these costs out of pocket.
In case of an accident, insufficient coverage will still cost you. For instance, in a state where the minimum liability coverage is 15/30/5, it means that $15,000 will be paid out for bodily injury, $30,000 for the accident, and a maximum of $5,000 for property damage.
Let’s say you crash with another vehicle with two passengers. The two passengers are seriously injured, and the car totaled. The claims submitted are for:
- $20,000 for the driver and $10,000 for the ambulance ride and medical costs
- $7,000 to repair the damaged body of the car
Your insurer will only pay a maximum of 15,000 for bodily injury for the driver, $10,000 to cover the medical expenses, and a maximum of $5,000 for property damage. This means that your insurer won’t pay:
- $10,000 for medical care of the driver, and
- $2,000 for the repair of the car
Extra coverage isn’t as expensive as you may think
If you own a very old car, few assets, you’re on a tight budget, and you don’t drive much, experts recommend that you get a minimum of 50/100/50. This is ideal for retirees who are downsizing or college students.
For middle-income earners, financial experts recommend 100/300/100. This is often adequate. Although the cost of purchasing a 100/300/100 auto insurance level of coverage is higher, it doesn’t mean that it costs twice as much as the 50/100/50 coverage. In a recent auto insurance rates analysis, it was discovered that moving to a high level will only cost an additional $74 a year. The state average minimum is $562, and bumping that to 50/100/50 will cost you $640. Moving to the 100/300/100 level will cost you $714, which is just $74 more to double your coverage.
Car insurance: Other options
Apart from the common types of auto insurance covers discussed above, you may want to consider adding some options to your auto insurance policy. These may include:
Emergency roadside services: It’s part of life for vehicles to break down sometimes. When this happens, it can be a major hassle. But with emergency roadside services coverage, it can become a little less major. Your insurer will pay for common expenses to help you get back on the road as soon as possible.
Mechanical breakdown: This type of coverage will pay for car repairs that are not accident related. You can add this option to your auto insurance policy because it costs less, it is transferable to another driver when you sell your car, and it will also include more parts than a typical dealer’s warranty.
Modified car coverage: Although your car insurance company will value your car as it originally was, it’s your car, and you can choose what you want to do with it. While modifications can be for aesthetic purposes or for adjusting performance, you will need insurance to cover the modifications.
Because modified cars often use expensive parts and sometimes have higher repair needs, your car may be assessed a higher premium. But this isn’t always the case. Some modifications can actually lower your premium if they add safety and security to your car.
Non-owner liability coverage: If you don’t own a car but drive one, non-owner liability coverage will pay for any injuries and property damage that you may cause to the other party. However, it won’t cover for any damages to your borrowed or rented car, nor will it pay for any injuries that you may have sustained after the accident. To protect yourself, whenever you borrow a car from a friend or relative, ensure that you’re listed on the owner’s policy. In some states, this may be compulsory.
Car insurance coverage: Special circumstances
Whether you work as an Uber driver or own a collectible, you may require special coverage. Other special types of insurance that you may consider including:
Car insurance: Classic
According to the Classic Car Club of America, a car can qualify as a classic car if it was manufactured between 1928 and 1948. However, the definition of a classic car will vary by state, and when it comes to insurance companies, defining a classic car becomes even more complex. Some insurers consider cars above 10 years since the year of manufacture as classics, and others deem cars manufactured during the 70s and 80s not to be classics because of the high production.
However, whether you own a 1941 Willys Americar hot rod, a 1966 Ferrari 330 GTC, a 1994 Ford Mustang SVT Cobra, or any other collectible car, you will want to do everything in your power to protect your investment. Unlike ordinary cars, classic cars increase in value with time.
Car insurance: Rentals
Does my auto insurance cover rental cars? The deductions and limits on your car insurance can still be extended to your rental car as long as you drive it for your own personal use. If it’s a business rental or a commercial rental car, your personal auto insurance coverage won’t apply. However, ensure that you check your personal car insurance policy or contact your insurer to find out the coverage extended to your rental car.
Car Insurance: Ridesharing drivers
If you’re an Uber or Lyft driver, you should highly consider this type of auto insurance. This is because your personal car insurance won’t cover you in case of an accident. Additionally, your personal car insurance may cancel your policy if they discover that you haven’t disclosed that you drive your car for money.
Autonomous technology is finally here: Google’s Waymo is building autonomous vehicles, Tesla vehicles now have an Autopilot function, and Uber and Lyft are working on self-driving vehicles. The major advantage of self-driving cars is that they are safer than a human-driven car, which means fewer accidents. Fewer accidents equal lower auto insurance premiums.
While some say we may do without auto insurance, you should remember how car insurance companies determine your rates in the first place. Like many other insurance products, your auto insurance coverage will be calculated on how risky you are to insure. This will depend on a few factors, including your driving record, your car, zip code, personal details, and how far you drive among others.
What if you’re not able to get car insurance?
There are various reasons why car insurance companies can deny you coverage. Some of the reasons might be your driving history, failure to afford one, or even the type of car you own. You will eventually need car insurance to get on the road. But what can you do if you are turned away by insurance companies? The important thing is to understand the risk as well as the alternative options to get coverage.
Programs for high-risk drivers
Being a high-risk driver simply means that you have past driving violations, poor credit, a lapse in insurance coverage, young drivers, or you’re an inexperienced driver. This will result in higher insurance premiums that you might not be able to pay for. To respond to the cases of uninsured high-risk drivers, many states have set up high-risk car insurance pools for high-risk drivers. These pools differ from one state to another. Always keep a clean record as costs can quickly add up hence increasing the premium rates.
Steps to Save on Car Insurance
Car insurance rates are on the rise across the country; this is due to the litigious nature of society and the rising cost of vehicles. Additionally, having car insurance is a brilliant thing. However, it can add to the driving expense. A lot of people spend most of their time researching the latest model, as well as the snazziest features; however, many know too little about car insurance and what is involved in it. Insurance is an important part of protecting yourself. Your car insurance can ensure that an accident won’t bankrupt you since anything can go wrong at any time when you are driving a car.
Nowadays, it is very easy to buy car insurance. You either buy it from an insurance company or through an independent insurance broker. You can add your car to your present insurance policy or get a discount by getting several quotes from the same insurer. You can shop around by getting quotes from several insurance companies and then compare the policies to pick the one that matches your needs. The other way of getting insurance coverage is by buying it from independent brokers who happen to work with numerous companies. They can get you the best coverage. Although insurance policies can be expensive, there are some things you can do to minimize the burden.
Choose a higher deductible
Always get an insurance company that can handle unacceptable losses. A higher deductible lowers your premium since you pay more if you have a claim. It is important to set the right deductibles, for instance, why set a deductible at $250 if you can handle a $1000 loss? This simply means that you will be buying insurance that you don’t need. If you are an excellent driver with no accident history on record, choosing a higher deductible on collision might be a good bet. Make sure to ask your insurance agent how your premiums will be affected once you have raised your deductible. If you raise your deductibles, make sure that you have enough money set aside to pay for the deductibles whenever you want to make a claim.
Don’t over-insure older cars
Older cars are cheaper to insure than new ones. However, the make and model of your car will influence premiums more heavily. Your car can be old, but it was manufactured abroad, this means that the replacement parts are expensive to get, and it may cost more to insure. Over-insuring an older car is a big problem.
Many drivers pay large amounts of premiums on a monthly basis for car insurance coverage that they will never use. The question of whether your car is over-insured also depends on your lifestyle as well as your budget. Are you ready to pay for damages or repairs from your pocket? How much risk are you going to take?
Maintain good credit
Many insurance carriers factor your credit history while setting your premium rates. It is common sense that a driver that has been in many accidents will cost the insurance company lots of money. A credit score is a touchy issue in most of the states. According to some researches, people who manage their credit effectively are unlikely to make claims or make fewer claims. Always make sure that you check your credit history regularly to ensure that the information is correct.
Discount checklist: Lowering monthly premium
Insurance carriers offer several discounts to policyholders. Some companies can offer you a discount for new vehicles, if your car is accident free, for safe driving, and some will surprise you by giving you a discount if there is a younger driver on your policy who is a good student and has taken a driver-training course or older drivers that have taken refresher courses. The final cost of insurance is the most important thing; however, it is good to ask your insurer what discounts you qualify for.
Bundling Your Coverage
You can save with multiple-policy discounts by bundling your insurance policies. Simplify by protecting all your property with just one company. This way, you will not have to worry about which company to call when filing a claim. Discounts that can be combined include auto plus home, auto plus renters, motorcycle plus renters, auto, home plus life insurance, multi-car, and boat plus auto. Make sure that your policy matches your lifestyle and you are getting the best discount.
Being a Long-time customer
Discount given to long term customers is also known as loyalty discounts. Insurance companies love loyalty. You can be given a discount depending on the specific insurer. The discount can grow depending on how long you have been a customer. However, you should not stay with an auto insurance company simply because they offer customer discounts.
Being a Good student
Good student auto insurance discounts are a great way to save money on your insurance coverage. Statistically, younger drivers present a higher risk to the insurance companies and often face paying higher car insurance premiums than experienced drivers. The good news is that, if you are a young driver or a parent to a young driver who gets good grades, you can qualify to get a good student discount since good students are regarded as low risk. These premiums vary across insurance providers. Therefore, it is advisable to compare various insurance providers to see who offers the best discounts.
Being a College student
When it comes to students, affordability is a priority. College student car insurance discounts offer cheap auto insurance for college students with competitive rates. The answer to whether you are eligible for a college students’ car insurance policy depends on various factors like, whose name is on the car title? And where will you be living? If you are living with your parents, you can keep your vehicle on their car insurance policy. Additionally, if the name on the title is your parents’, you can stay in the family car insurance coverage. If your name is on the title, you will be required to buy your own car insurance policy under your name. College students can also qualify for a good student car insurance discount if they have good grades.
According to statistics, senior drivers are likely to get lower premium rates compared to younger drivers. Retirement changes your car insurance premiums. Call your agent and let them know that you have retired and ask them about any discount that you qualify for. Senior drivers can also qualify for long-term customer discounts if they have remained loyal to one insurance company for a long period of time.
Being a Good driver
Car insurance companies give you a discount just for keeping your driving record clean. This discount might increase over time as you maintain a clean driving record.
Taking Drivers’ education classes
With this car insurance discount, new drivers who have concluded a drivers’ training course get a discount on their insurance premiums and save money.
Partaking in Group insurance
Group insurance is one of the most common ways that people get a reduced car insurance premium. If you are a member of an organization, club, school team, you are eligible for group insurance. Some employers also offer group insurance.
Having Low mileage
Living close to your place of work or even close to school can save you a lot of money. You can get a low mileage car insurance discount if you drive your car locally or live close to school or work.
This car insurance discount applies to cars that are equipped with certain anti-theft devices. To be eligible for this discount, you must produce proof of installed anti-theft devices.
Steps to take if your insurance policy is canceled
You thought you were doing great when paying your monthly premiums and then you suddenly get a letter or a call telling you that your insurance policy will be canceled. Cancellation means that the contract has been terminated even before the end of the policy. A canceled insurance policy leaves you financially vulnerable, driving uninsured, which can result in fines or even a suspended license. This may also lead to higher insurance premium rates on future policies. An insurance policy can be canceled for various reasons like fraud, lack of payment, a conviction for a moving violation or due to health issues that may impair driving.
If your insurance was canceled due to non-payment, contact your insurance provider and negotiate a reinstatement and stop your policy from being cancelled. Explain your reason for not paying and ask them to reconsider. Long-term customers can negotiate new term payment and settle the unpaid balance. If you think that the cancellation is unfair, you can contact your insurance agent and ask them for more details. If they fail to communicate and you think that they are unfair, you can contact your state insurance department.
If your policy was canceled due to a DUI, you might be able to work things out with your insurance provider to retain a policy with them by adjusting the policy to counteract the increased premium rates. If the case you’re convicted, you will have to search for a new insurance company which can be tough due to your driving history.
Steps to Take When You’re Unhappy with Your Insurance Company
It can be a frustrating experience when you run into trouble with your auto insurance company. Fortunately, there are some people that can assist you in resolving your problem. For instance, there is the State Insurance Commissioner who is always there to help you when you feel that you’re being treated unfairly.
However, before you turn to your State Insurance Commissioner, try to first reach out to your insurance representative, a claims adjuster, or the ombudsman at the insurance company. The main responsibility of these people is to help you.
Regardless of your reason to want to reach out to them, ensure that you speak to the supervisor first before you go to the commissioner. This will save you a lot of work. However, if you believe that no one is listening to you and your insurer isn’t operating in good faith, you’re not out of options. Contact your state insurance commissioner and involve them to assist you.
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