The Ultimate Guide to Auto Insurance
In the market for an auto insurance policy? You’ve come to the right place. In this guide, I’ll define the different types of car insurance. Not every policy is mandatory, so you’ll be able to learn which program is right for you. Then, we’ll discuss key considerations and costly car insurance myths to round out your knowledge so you’re best equipped to purchase the best policy available.
Types of Auto Insurance
In order to be an educated consumer, you will want to research all the types of auto insurance coverage before you decide what you need to buy. If you don't, it is possible that you will not have the coverage you need, or maybe even worse, will be paying for coverage you will never use.
In the spirit of that, let’s breakdown the different types of car insurance you can expect to find when searching locally or online for a policy.
There are two types of liability coverage policies:
- Bodily Injury Liability: In case of an accident, this policy may help pay for costs related to another person’s injuries.
- Property Damage Liability: This policy may help pay for damage caused to another person’s property while you’re behind the wheel.
Auto insurance is mandatory by U.S. state law. Most states require you to carry a minimum amount of liability coverage in order to have your vehicle registered or to obtain a driver’s license.
The second primary component of a sound auto insurance policy is collision coverage. This type of coverage will pay to fix or replace your vehicle after an accident. In case you hit something, like another vehicle or fixed object like guard rail or telephone pole, collision coverage helps pay for the damages to your car.
Keep in mind that collision coverage is typically optional, but many insurance experts and most people would agree that it is a smart decision to make.
Comprehensive coverage is a little misleading—it actually covers things that happen to your car outside the scope of damaging someone’s property, injuring another person, or colliding with something. In actuality, comprehensive coverage protects you from damage to your car from things like theft, vandalism, fire, and natural disasters.
Like collision coverage, comprehensive coverage is optional. Recommending this policy is wholly up to you. Think about where you live and park your car. Is it prone to natural disasters like floods or earthquakes? Do you live or work in a neighborhood known for crime? If so, comprehensive coverage might be right for you. Be aware that you will pay a deductible first before your insurer reimburses your claim.
Personal Injury Protection
This type of car insurance policy is almost a necessity. Personal injury protection covers medical expenses you incur in an accident regardless of fault. Coverage extends to other drivers listed on your policy, members of your household and your passengers.
Qualifying expenses can include medical bills as well as those not typically covered by health insurance such as lost income, child care or even a funeral.
Personal injury protection is required in some states and optional in other states where it's available.
Medical Payments Coverage
Similar to personal injury protection, medical payments coverage is a safeguard against expensive costs incurred after an accident. This coverage may help pay for costs associated with injuries to you, your passengers, or family members involved in an accident if they’re driving the insured vehicle.
Medical Payments coverage may help pay for common medical procedures such as hospital visits, surgery, and X-rays. However, it is not as comprehensive as personal injury protection policies.
Key Considerations About Car Insurance
No one wants to think about getting into a car accident. Having been in one myself, I can tell you it isn’t a pleasant experience. What made the situation better—and significantly less stressful—was having a solid auto insurance policy that had my back and supported me through this time.
Whether you’re a first time driver or are planning on switching to a new service, here are some important factors you should know before you buy.
1. Your Record and Behaviors
Your driving record has a significant impact on what sort of rates you'll receive. Insurance companies can use even the smallest violation as an excuse to charge you more. Along with this, insurance companies assess risk by examining your daily driving behaviors in detail.
As an illustration, your distance driven in miles per day will also affect how much you pay for insurance. If you don't drive much (less than 10 miles daily), you might even qualify for a discount because you represent less risk to the insurance company. Meanwhile, if you often drive daily, you will represent more of a risk to the provider, and that might reflect on the amount of your premium.
2. Credit history
Many insurance companies will pull a copy of your credit report when you apply for a policy. This is another way they assess risk because if you have a lower credit score due to being late or failing to pay bills, it indicates to them you might not pay your policy, thus making you a riskier investment.
Meanwhile, if you have a great credit score and stable payment histories with creditors, it makes you more attractive to insurance companies, and they can reward you for this with better premiums.
If you spend a lot of time driving in a rural setting out in the middle of nowhere, you will probably not have to pay as much as someone living and driving in a bustling urban setting.
The location also considers the area where you park your vehicle. If it's a riskier area where your vehicle could be more susceptible to damage or theft, then the insurance provider might make you pay more for this risk.
Now this one is really not fair, but it's, unfortunately, how car insurance works. Teens and seniors have to pay more than everyone else, and young men have to pay more than young women.
Insurance companies often make these determinations by analyzing data such as crashes by age and gender to determine risk assessment. Once you are past your teenage years and if you don't have any accidents or points on your license from moving violations, you will qualify for better rates.
5. Your Vehicle
You pay more if your car has a lower crash safety rating. Also, insurance providers look at your car's safety equipment, and some might offer you discounts if your vehicle comes equipped with anti-lock brakes, proactive safety features like OnStar and theft-deterrent systems.
In essence, any equipment that makes you safer and minimizes the risk of damage to the vehicle, the better it will be in your favor.
Auto Insurance Myths that Will Cost You
Knowing car insurance myths can help you avoid costly mistakes, especially in areas in which practical evidence and industry reports point to the need of structural and mechanical changes in your automobile.
Below are some of the most common car insurance myths that can prove costly for those who believe them. As always, be sure to do your research into your vehicle and the driving laws of your state so you know what you’re dealing with.
1. My Red Car Will Cost Me Dearly If I Want to Insure It
Forget about the color of a car affecting premium rates. Whether you have a red car – or a blue or yellow one, for that matter – will not increase or decrease your monthly premium remittance.
Your insurance company cares more about things like body style, engine size, year, and model than the cosmetics of your automobile. What also matters to your insurer is your behavior at the wheel, tickets you could potentially rake in, and moving violations like reckless driving and speeding.
2. My Credit History and Score Have Nothing to Do with My Insurance Rates
That is inaccurate. Your insurance company is very interested in your financial situation because premiums typically don't pay themselves off. You need a job and sufficient income to afford premium payments, so things like employment history, income level, and net worth are important to your insurer.
Additionally, your credit score and overall creditworthiness play an important role in the way the insurer evaluates your risk profile, that is, to ascertain whether you are a high-, medium- or low-risk potential client.
3. I'm Covered If Anything Happens to My Car
Don't believe that. Unless you have comprehensive and collision coverage, you are on your own if your automobile is damaged by flood, hail or fire, or if vandals, say, on a Friday night spray-paint graffiti on your windshield.
Reducing risks of damage to an automobile is one of the reasons why a lender or car leasing company would require that you add comprehensive and collision riders to your insurance policy before driving the car.
4. My Car Insurance Policy Covers Rentals, Too
Your car insurance policy typically does not cover rentals, especially if you lease the automobile overseas. But talk to your insurer to get more information about coverage transferability because some insurance companies grant that coverage.
Usually, the rental agency would recommend that you insure the car for a small daily amount to be added to your rental quote, and I think this is a smart thing to do, especially if you are in foreign land and the road conditions and local driving patterns are dissimilar to what you are familiar with in the U.S.
This has nothing to do with your driving ability; it pertains more to the increased risk level and the difference in infrastructure and driving habits that you could experience overseas.
5. I'm Not Responsible if Someone Drives My Car – And Damages It
Not true – and I might even add, nonsensical. The car is yours, so anything that happens to it is your responsibility, irrespective of who was at the wheel when the incident occurred.
You can go back and sue the person responsible for the incident, but initially, you would have to bear the responsibility when talking to your insurer. Note that your insurance company follows the car, not the person operating it.
6. Everything in My Car is Covered – Including Personal Belongings
Your insurance company does not cover personal property you leave in your car, so think twice before you leave your latest iPhone or brand-name fur coat in the automobile. If personal items get stolen or damaged in the course of an incident, you are out of luck.
Now that you understand the various policies that are out there, you should make a decision on what the coverage amount you need. So, decide which policy types you need, that is, one that will give you peace of mind while you are on the road so you are comfortable should the worst happen.